Accounting Change to Benefit LIHTC
The housing industry is fully engaged and supporting a white paper which was commissioned by a 20-member task force, led by Raymond James Tax Credit Funds, Inc.
The white paper proposal encouraged the Financial Accounting Standards Board to change the accounting treatment of LIHTC investments and outlines the reasons why public companies investing in LIHTC properties should be able to change the way they report these investments on their financial statements.
The paper was recently presented to the FASB’s Emerging Industry Task force (EITF), which, fortunately, has the proposal on their March 14 meeting.
RubinBrown is hopeful that the accounting rules surrounding LIHTC investments change. Currently, companies must report the investment (cost) of housing credit investments pre-tax while the benefits are reported below the line, in the tax section of the financial statements. Simply put, it’s bad financial statement geography because it reduces a company’s pre-tax earnings while the benefits from the investment are reported after tax.
On a net basis, there is no difference; however the current accounting treatment misreports the investment cost from the benefits of investing in housing credits. The result of current accounting rules makes it more difficult to attract investors as public companies and their investors are focused on pre-tax earnings.
The industry is hoping for a change that would allow companies to report in their financial statements both the cost and benefits either above the pre-tax line or both below in the tax section. There is no question in the LIHTC industry that an accounting change would attract more capital for investment in affordable housing.