A proposal to expand the use of simpler accounting for tax credit programs is too narrowly written to cover bank investments in renewable energy tax credits, banks including Bank of America Corp., Capital One Corp, and US Bancorp have told US accounting rulemakers.
The Financial Accounting Standards Board’s plan, released in August, calls for expanding a special accounting method that currently only is allowed for investments in low-income housing tax credits. The proposal would allow businesses that invest in New Markets Tax Credits and other types of credits to amortize, or spread out, the initial cost of the investment in proportion to the tax credits and other tax benefits they receive.
The banks in letters to the accounting board applauded the idea, but said the potential execution would exclude some types of increasingly popular tax credit programs.
They called on the FASB to tweak the language of the proposal so it would do what the board intended—level the playing field so banks and businesses looking to invest in urban renewal or green energy tax credits get similar, favorable accounting to those that invest in low-income housing tax credits.
Without the break, businesses investing in all other types of credits have to present the depletion of these investments as expenses in their pre-tax income while recognizing the economic benefit of the investments as reductions to income tax expense.
Citizens Financial Group told FASB the eligibility condition that requires “substantially all” of the investment returns be from income tax credits and other income tax benefits is too high of a threshold to apply to transactions that are “primarily” for the purpose of receiving income tax credits.
“This bright-line quantification results in a different accounting method for investment in similar tax credits, which is counterintuitive and creates unnecessary confusion for the readers of the financial statements,” the bank wrote.
“Substantially all” is generally interpreted as a threshold of 90%, wrote US Bancorp. Such a cutoff could disqualify credits that create cash returns in addition to tax credits and tax benefits, such as renewable energy tax credits, it wrote.
The American Bankers Association said the majority of low-income housing tax credit investments would qualify under the proposal, but specific wind-power investment programs generally would not.
Request Made in 2021
PNC Financial Group Inc. and the American Bankers Association in 2021 asked FASB to allow investments in New Markets Tax Credits—credits part of a federal program to spur private investment in low-income communities—to qualify for the special accounting. Organizations sell tax credits to investors, including banks, and use the funds to entice new construction or new businesses in historically overlooked areas. The investors then use the credits to lower their tax obligations.
FASB agreed that investments in similar incentives should be accounted for the same way, and it opened up the idea of allowing the favorable accounting treatment to investments in renewable energy credits like wind and solar credits.
Capital One Corp. said it appreciated FASB attempting to expand the accounting treatment to many other types of tax credit investments, but it said language in the proposal would potentially limit the number of credits that qualify.
“We respectfully request the board incorporate language into the final ASU that would further clarify eligible tax credit investment structures, in order to ensure the objective of the proposed amendments is achieved,” the bank wrote.
These credits are increasingly important to banks and other businesses that view investing in local communities via housing credit programs and promoting clean energy and power generation as part of their environmental, social, and governance goals, Bank of America Corp. said.
“As one of the world’s largest financial institutions and investor in tax credit equity structures, the proper accounting for these investments is highly important to us and our investors,” the bank wrote.
Comments on the proposal were due Oct. 6. FASB typically takes several weeks to review feedback from a proposal before discussing it in public and plotting its next moves.
Source: news.google.com
