Accounting Standard Updates
12 Days of SSAP: New Market Tax Credit Project
Hot Take:
JLK Rosenberger is carrying on our holiday tradition of taking a new perspective on a holiday classic – the Twelve Days of Christmas. Rather than filling your head with turtle doves and gold rings, we are focusing on the latest changes to SSAP and how they will impact your insurance entity in 2024 and beyond.
The FASB has modernized its current position on equity investment tax credits and expanded the available tax credit inventory that qualifies for the allowed runoff methodology. JLKR provides a brief synopsis herein for the GAAP and statutory accounting handling of these specialized tax items.
Full Article
On March 29, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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),” which expands use of the proportional amortization method of accounting to equity investments in tax credit programs beyond those in low-income housing tax credit (LIHTC) programs.
Under the update, the optional proportional amortization method previously limited to tax equity investments in LIHTC will now be permitted for tax equity investments “regardless of the tax credit program or programs from which the investment generates income tax credits.” For example, an entity making a tax equity investment for the purpose of receiving tax credits from Renewable Energy Tax Credit, New Markets Tax Credit, or Historic Rehabilitation Tax Credit programs may now elect to use the proportional amortization method. However, there are still five conditions, including “that substantially all of the projected benefits are from income tax credit and other income tax benefits,” that must be met to qualify for this accounting treatment.
The standard also provides specific disclosure requirements, including the nature of the tax equity investments and their effect on the financial position and the result of operations.
Statutory Treatment
During the 2024 national meetings, regulators spent quite a bit of time discussing the changes, which resulted in significant rewrites of SSAP Nos. 93 – Low Income Housing Tax Credit Property Investments and 94R – Transferable and Non-Transferable State Tax Credits. Modifications adopt new SAP concept guidance for SSAP Nos. 93 and 94R and clarify revisions to SSAP Nos. 34 – Investment Income Due and Accrued and 48 – Joint Ventures, Partnerships and Limited Liability Companies effective January 1, 2025. Early application is permitted only for SSAP No. 94R.
The federal New Market Tax Credit (NMTC) programs have been around since late 2000, originally established by the U.S. Congress to provide investors with incentive federal tax credits for investing in low-income urban and rural communities. The program(s) provides substantial tax credits to investors that provide capital and maintain staying power (7 years) in the low-income community investments. The concept grew in popularity over the years and states also became involved in similar programs providing state tax credits. As tax credit programs evolved, existing accounting guidance did not provide comprehensive guidance on the nuances of these evolving programs. This SAP concept attempts to update and cover the existing universe of these low-income community projects.
As a result, SSAP No. 93 has been replaced, and the new guidance now covers all qualifying tax credit investments regardless of structure or type of state/federal tax credit program. SSAP No. 94R has been revised to include the scope of purchased state and federal tax credits and replaces much of the original guidance provided for purchased state tax credits.
Effective Date of ASU: Public entities – fiscal years beginning after December 15, 2023
Nonpublic entities – fiscal years beginning after December 15, 2024
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