Accounting Standards Update · 2023

ASU 2023-02 — Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)

Affects323 Investments—Equity Method and Joint Ventures

The amendments in this Update permit reporting entities to elect to account for their tax equity investments, regardless of the program from which the income tax credits are recieved, using the proportional amortaziation method if certain conditions are met. A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.

To qualify for the proportional amortization method, if elected in accordance with paragraph 323-740-25-4, all of the following conditions must be met:

1
It is probable that the income tax credits allocable to the tax equity investor will be available.
2
The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project.
3
Substantially all of the projected benefits are from income tax credits and other income tax benefits. Projected benefits include income tax credits, other income tax benefits, and other non-income-tax-related benefits. The projected benefits should be determined on a discounted basis, using a discount rate that is consistent with the cash flow assumptions used by the tax equity investor in making its decision to invest in the project.
4
The tax equity investor’s projected yield based solely on the cash flows from the income tax credits and other tax benefits is positive.
5
The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor’s liability is limited to its capital investment.

The amendments in the Update also remove certain guidance for Qualified Affordable Housing Project investments and require the application of the delayed equity contribution guidance to all tax equity investments.

This Accounting Standards Update is the final version of Proposed Accounting Standards Update 2022-004—Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force), which has been deleted.

Accounting Standards Update No. 2023-02 (PDF)

Issued: March 29, 2023

Text as published in the FASB Accounting Standards Codification, Basic View.