Investment Tax Credit Accounting Plan Too Narrow, Banks Say | Techy Kings

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A proposal to expand the use of simpler accounting for the tax credit program is written too narrowly to cover banks’ 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 the special accounting method currently only allowed for investments in low-income housing tax credits. The proposal would allow businesses that invest in New Market Tax Credits and other types of credits to amortize, or spread, the initial cost of the investment in proportion to the tax credits and other tax benefits they receive.

The banks in a letter to the accounting board praised the idea, but said the potential implementation would exclude some types of tax credit programs that are increasingly popular.

They called on the FASB to change the language of the proposal so it would do what the board intended—level the playing field so that banks and businesses looking to invest in urban renewal or green energy tax credits get the same, favorable accounting as those investing in housing tax credits. low income.

Without a break, businesses that invest in all other types of credit have to present this investment depreciation as an expense in their pre-tax income while recognizing the economic benefits of the investment as a reduction to income tax expense.

Citizens Financial Group told the FASB that the qualifying condition requiring that a “substantial portion” of the investment return be from income tax credits and other income tax benefits is too high of a threshold to apply to transactions that are “predominantly” for the purpose of receiving the income tax credit.

“These bright-line quantities result in different accounting methods for investments in similar tax credits, which are counterintuitive and create unnecessary confusion for financial statement readers,” the bank wrote.

“All” is generally interpreted as the 90% threshold, US Bancorp wrote. Such deductions could disqualify credits that produce cash returns in addition to tax credits and tax benefits, such as the renewable energy tax credit, he wrote.

The American Bankers Association said the majority of low-income housing tax credit investments would qualify under the proposal, but certain wind power investment programs generally would not.

Request Made in 2021

PNC Financial Group Inc. and the American Bankers Association in 2021 asked the FASB to allow investments in the New Market Tax Credit—a credit that is part of a federal program to spur private investment in low-income communities—to qualify for special accounting. The organization sells tax credits to investors, including banks, and uses the funds to attract new construction or new businesses in historically neglected areas. Investors then use the credit to reduce their tax liability.

The FASB agreed that investments in similar incentives should be accounted for in the same way, and it opened the idea of ​​allowing favorable accounting treatment to investments in renewable energy credits such as wind and solar credits.

Capital One Corp. said it appreciated the FASB trying to expand accounting treatment to many other types of tax credit investments, but it said the language in the proposal could potentially limit the number of credits that qualify.

“We respectfully request that the board include language in the final ASU that will further clarify the structure of qualified tax credit investments, to ensure that the objectives of the proposed amendments are met,” the bank wrote.

These credits are increasingly important to banks and other businesses that see investing in local communities through 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 investors in tax credit equity structures, proper accounting for these investments is extremely important to us and our investors,” the bank wrote.

Comments on the proposal were made on October 6. The FASB typically takes several weeks to review feedback from proposals before discussing them publicly and planning next steps.

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