Tax News Update    Email this document    Print this document  

August 31, 2022

FASB seeking comments on proposal to allow amortization method of accounting for all tax credit investment programs if certain conditions are met

  • The proportional amortization method currently is limited to taxpayers using the low-income housing tax credit (LIHTC).
  • The proportional amortization method allows for both the recognition of the tax benefits and the amortization of the tax credit investment to be included in total tax expense (benefit) reported in the taxpayer’s financial statements.
  • This expansion would affect taxpayers that invest in the New Markets Tax Credit (NMTC), Historic Rehabilitation Tax Credit and Renewable Energy Tax Credit (RETC), but would also affect investors in other tax credits programs.
  • Comments on the proposed ASU are due on or before October 6, 2022.

On August 22, 2022, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) that would allow taxpayers investing in any tax equity structure to use the proportional amortization method if certain conditions are met. Currently, this method can only be used for investments in low-income housing tax credit (LIHTC) structures.

This expanded qualification for the proportional amortization method would affect investors in the three other main federal tax credit programs— the New Markets Tax Credit (NMTC), the Historic Rehabilitation Tax Credit and the Renewable Energy Tax Credit (RETC). However, the proposal would also affect investors in other federal, state and foreign tax credit programs.

Comments on the proposed ASU are due by October 6, 2022.


Under current US GAAP, only investors in LIHTC structures can apply the proportional amortization method, which (1) amortizes the net investment cost proportionately to the received income tax credits and benefits and (2) presents the investment gains and losses and tax credits in the income statement as a component of income tax expense.

Investors in other tax credit structures typically use the equity or cost methods, which generally result in a pre-tax income or loss on the investment and a recognition of the tax credits and other income tax benefits in the tax expense line.

Proposed amendments

Under the proposed ASU, an investor in any tax equity structure could elect, on a tax-credit-program-by-program basis, the proportional amortization method if:

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

The proposal notes that the guidance applies to entities that are equity investors in projects that generate income tax credits and other income tax benefits. Therefore, other types of investments in the underlying project (e.g., loans or debt investments) would not be eligible to use the proportionate amortization method under this proposed ASU.

The effective date is not yet known. FASB indicated that the effective date will be determined after considering stakeholder feedback on this proposed Update.


Taxpayers that have tax credit investments and/or are considering making tax credit investments should review the proposal and determine if they have feedback for FASB. Additionally, assuming the proposal is approved, when evaluating whether to elect the proportionate amortization method to existing non-LIHTC tax equity investments programs, it will be important to understand how the investment carrying value would change and how that would impact retained earnings on the date of adoption.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services
   • Michael Bernier (
   • Dorian Hunt (
   • Eric Power (