# ASC 323-740-25: Investments—Equity Method and Joint Ventures — Income Taxes—Proportional Amortization Method — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/323/740/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:f1df001e724816b66d881d5c56e6b91d20fa2c0350e7ea6c61cfcb06376472cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 323-740-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/323/740/#25-recognition) SEC content: no ### Proportional Amortization Method ##### [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:4244040f4f2e1636842e609f1b2df6c3bb1a540265a5dd2817026d3b79be14f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A reporting entity that invests in projects that generate income tax credits and other income tax benefits from a tax credit program through limited liability entities (that is, the investor) may elect to account for those investments using the proportional amortization method (described in paragraphs [323-740-35-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-35-2) and [323-740-45-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-45-2)) if elected in accordance with paragraph [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4), provided all of the following conditions are met: 1. a It is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the income tax credits allocable to the investor will be available. 2. aa The investor does not have the ability to exercise [significant influence](https://asc.understandingaccounting.org/glossary/s/#significant-influence "Paragraphs 323-10-15-6323-10-15-7323-10-15-8323-10-15-9323-10-15-10323-10-15-11 define significant influence.") over the operating and financial policies of the underlying project. 3. aaa Substantially all of the projected benefits are from income tax credits and other income tax benefits (for example, tax benefits generated from the operating losses of the investment). Projected benefits include, but are not limited to, income tax credits, other income tax benefits, and other non-income-tax-related benefits, including refundable tax credits (that is, those tax credits not dependent upon an investor’s income tax liability). Tax credits accounted for outside of the scope of Topic 740 (for example, refundable tax credits) shall be included in total projected benefits, but not in income tax credits and other income tax benefits when evaluating this condition. This condition shall be determined on a discounted basis using a discount rate that is consistent with the cash flow assumptions utilized by the investor for the purpose of making a decision to invest in the project. 4. b The investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive. 5. c The investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the investor's liability is limited to its capital investment. ##### [323-740-25-1A](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1A) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:b694bd1dfb1c15d561f4f261f0bfc88b6da3192b003d409a8216654f73475cb8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining whether an investor has the ability to exercise significant influence over the operating and financial policies of the underlying project, a reporting entity shall consider the indicators of significant influence in paragraphs [323-10-15-6 through 15-7](https://asc.understandingaccounting.org/asc/323/10/#323-10-15-6) . In considering the operating and financial policies of the underlying project, the investor shall consider the operations, financial decisions, and related objectives of the project as a whole. ##### [323-740-25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1B) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:9edf0f7941753ff427ceca277509c7d726c2b0f042a87c919d9b20dcd5a8dd82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Other transactions between the investor and the limited liability entity (for example, bank loans) shall not be considered when determining whether the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) are met, provided that all three of the following conditions are met: 1. a The reporting entity is in the business of entering into those other transactions (for example, a financial institution that regularly extends loans to other projects). 2. b The terms of those other transactions are consistent with the terms of arm's-length transactions. 3. c The reporting entity does not acquire the ability to exercise significant influence over the operating and financial policies of the underlying project as a result of those other transactions. ##### [323-740-25-1C](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1C) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:e99eb47798b55adc776a2a6d93d33bdfa02eecb5825ef5cd615522eb1a5034f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the time of the initial investment, a reporting entity shall evaluate whether the conditions in paragraphs [323-740-25-1 through 25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) have been met to elect to apply the proportional amortization method on the basis of facts and circumstances that exist at that time. A reporting entity shall subsequently reevaluate the conditions upon the occurrence of either of the following: 1. a A change in the nature of the investment (for example, if the investment is no longer in a flow-through entity for tax purposes) 2. b A change in the relationship with the underlying project that could result in the reporting entity no longer meeting the conditions in paragraphs [323-740-25-1 through 25-1B](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1). ##### [323-740-25-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:7515ba7c5b40e411bca84e83e3611d1a60adb49bcef775e0d0e990589d6c2ff3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-25-2A](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-2A) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:c59b0e04414156bae0ed20c6b7168ba71322ef21bfe57b3dc87d97b229b6e336 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2023-02.](https://asc.understandingaccounting.org/updates/asu-2023-02/) ##### [323-740-25-3](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:6de1ebe68efacf3473465447f8ed8c0b142298fb2f83a242581aae0319f4ccfa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A liability shall be recognized for delayed equity contributions that are unconditional and legally binding. A liability also shall be recognized for equity contributions that are contingent upon a future [event](https://asc.understandingaccounting.org/glossary/e/#event "A happening of consequence to an entity. The term encompasses both transactions and other events affecting an entity.") when that contingent event becomes [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur."). Topic 450 and paragraph [842-50-55-2](https://asc.understandingaccounting.org/asc/842/50/#842-50-55-2) provide additional guidance on the accounting for delayed equity contributions. ##### [323-740-25-4](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:0fb4cb6fc966091becf34982f448bd5a9784899a0d6c922aa6e1fb2bc0cb3e83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The decision to apply the proportional amortization method is an accounting policy decision to be elected on a tax-credit-program-by-tax-credit-program basis that shall be applied consistently to all investments within an elected tax credit program that meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1) rather than a decision to be applied to individual investments that meet the conditions in paragraph [323-740-25-1](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-1). ##### [323-740-25-5](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:fbe161aef1ba6e61ce44bed985bcc19b109b791cab84ec10d21c691468cfffc4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall recognize income tax credits in the period that they are allocated to the investor for tax purposes. Unless all income tax credits are allocated to the investor at the date of initial investment, immediate recognition of the entire benefit of the income tax credits to be received during the term of an investment that generates income tax credits and other income tax benefits from a tax credit program is not permitted (that is, income tax credits shall not be recognized in the financial statements before the year in which the credit arises). ##### [323-740-25-6](https://asc.understandingaccounting.org/asc/323/740/#323-740-25-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:41:15.826Z to 2026-09-09T23:41:15.826Z Record version: sha256:eecec0bfe2531dd4b50b2310a9d8251e4ec5691a8e6c2bfc5620fe6a85e9632e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 (see paragraph [323-740-55-2](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-2)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits and other income tax benefits from a tax credit program. Example 2 (see paragraph [323-740-55-11](https://asc.understandingaccounting.org/asc/323/740/#323-740-55-11)) illustrates the application of the proportional amortization method to a limited partnership investment that generates income tax credits, other income tax benefits, and non-income-tax-related benefits from a tax credit program.