A — September 27 - October 10, 2013 — Mid Atlantic Real Estate Journal
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Mid Atlantic R eal E state J ournal Publisher ............................................................................Linda Christman Publisher ...............................................................................Joe Christman Section Publisher ................................................................Elaine Fanning Section Publisher ....................................................................Steve Kelley Associate Publisher ...................................................... Janine Hennessey Senior Editor/Graphic Artist ................................................ Karen Vachon Office Manager ....................................................................Joanne Gavaza Contributing Columnists ......................................................... Kyle Paisley Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly P.O. Box 26 Accord, MA 02018 (Mail) 312 Market Street, Rockland, MA 02370 (Overnight) Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, P.O. Box 26, Accord, MA 02018 USPS #22-358 | Vol. 24 Issue 18 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
Mid Atlantic Real Estate Journal
By Kyle Paisley Proposed Changes in Accounting for Qualified Affordable Housing Projects
O
n April 17, 2013, the Financial Account- ing Standards Board
(FASB) issued an exposure draft of an Accounting Stan- dards Update of Topic 323, In- vestment – EquityMethod and Joint Ventures - Accounting for Investments in Qualified Affordable Housing Projects. The exposure draft was issued in response to industry wide feedback to current accounting guidance that sets restrictive criteria, which has limited most investors in affordable housing projects that qualify for the low income housing tax credit (tax credits) from using the effective yield method. The exposure draft proposed certain changes to these cri- teria, which would allow for expanded use of the effective yield method for investments in affordable housing projects qualifying for tax credits (tax credit investments). Currently, the effective yield method can only be used, when, among other require- ments, a creditworthy entity guarantees the availability of the allocated tax credits. Due to the significance of such guarantees and eco- nomic criteria a guarantor would need to meet, very few tax credit investments have qualified to use this method. As a result, tax credit invest- ments are generally required to be accounted for using the equity method, since most tax credit investors can exercise
significant influence. The eq- uity method requires a tax credit investor’s share of in- come or losses to be presented separately from the realized tax benefits derived from an investment. In general, report- ing these items separately on the income statement misrep- resents the performance of tax credit investments by present- ing pre-tax losses on otherwise successful investments that are performing as intended. The proposed modifications outlined in the exposure draft would eliminate the above re- quirement and replace it with the following criteria: 1. It is probable that the tax credits allocable to the inves- tor will be available. 2. The investor retains no operational influence over the investment other than protec- tive rights and substantially all of the projected benefits are from tax credits and other tax benefits. 3. The investor’s projected yield based solely on the cash flows from the tax credits and
continued on page 20A Under the effective yield method, the initial cost of the tax credit investment, generally in the form of eq- uity contributions to a Limited Partnership or LLC, is am- ortized to provide a constant effective yield over the period that tax credits and other tax benefits are allocated to the investor. The amortized cost is netted against tax credits and other tax benefits as they are realized and presented as a component of the income tax provision on the income statement. This presentation provided other tax benefits is positive. 4. The investor is a limited liability investor in the afford- able housing project for both legal and tax purposes, and the investor’s liability is lim- ited to its capital investment. Based on the proposed revi- sions to the codification, many more tax credit investors may be able to adopt the effective yield method to account for tax credit investments.
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