by Ron Diner, Executive Chairman, Raymond James Tax Credit Funds
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At a meeting on September 13, the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) deferred approval of revised standards for accounting for low-income housing tax credit (LIHTC) investments. Housing credit industry officials had hoped the EITF would issue guidance at the meeting allowing the cost of LIHTC investments to be amortized “below the line” on the tax line along with the tax credits. The industry believes this change would boost affordable housing investment.
The EITF could finalize the revised standards at its next meeting on November 14.
Earlier this year, a nationwide task force of LIHTC investors and sponsors, working with Novogradac & Company LLP and CohenReznick LLP, and led by Raymond James Tax Credit Funds, developed a white paper on the subject that was presented to the FASB, which assigned it to the EITF for review. On March 14, the EITF issued an exposure draft proposing to allow entities to elect to account for a LIHTC investment by amortizing the cost of the investment “below the line,” even when a guarantee is not provided – a change suggested by the white paper. A public comment period drew 73 comment letters, all generally agreeing with the proposed amendments in the exposure draft.
At its September 13 meeting, the EITF included an update from its staff on the comment letters and EITF staff recommendations based on the responses. The EITF generally reaffirmed its original conclusion that the cost of LIHTC investments could be amortized “below the line.”
However, the EITF revised two aspects of the proposed amendments
1. A number of letters had expressed concern that the proposed requirement that investors retain no operational influence over LIHTC investments other than protective rights was overly restrictive and would make it difficult for many LIHTC investments to qualify to report losses “below the line.” Suggestions included “substantially no operational influence” or “no significant operational influence” other than protective rights. The EITF tentatively agreed with the concept of “no significant influence over operating and financial policies.”
2. In requesting comments, the EITF asked whether the respondents agreed that the effective yield method was an appropriate method by which to write off an investment. Forty respondents supported a proportional or ratable amortization method in addition to, or in place of, the effective yield method. Instead of the effective yield method, the EITF tentatively agreed on a proportional amortization method based on the tax credits and other tax benefits to recover the cost of their investments “below the line.”
Two additional items resulting from the September 13 meeting were:
1. The EITF asked staff to provide more information on the applicability of the EITF’s decisions to date on other kinds of tax credit investments.
2. The EITF tentatively agreed that LIHTC investments meeting the conditions in the proposal be presented as deferred tax assets on the balance sheet instead of as an investment. The EITF asked the staff to do further research on the implication of that decision.
The industry task force is discussing the open items with EITF staff in anticipation of the November 14 meeting.
Ronald Diner is Executive Chairman at Raymond James Tax Credit Funds, based in St. Petersburg, Florida. Raymond James has been sponsoring affordable housing since 1969, and has raised more than $4 billion in equity for more than 1,300 properties across the country since the inception of the Tax Credit program in 1986.