At a Glance

  • The Financial Accounting Standards Board (FASB) voted Wednesday to move forward with a new project that could fill a gap in current rules regarding theaccounting for nonrefundable transferable tax credits.
  • With the emergence ofnew tax creditssuch as those related to clean energy investments, many preparers and investors have pointed to the need for new guidance, board members said.
  • Board member Hillary Salo said concerns about this issue have persisted for some time, including during the board's deliberations ongovernment grants and environmental creditsin new standards. "I think it's appropriate to respond now," Salo said at the meeting.

In Depth

TheCHIPS and Science Act of 2022, the Inflation Reduction Act, and the One Big Beautiful Bill Act of 2025 all provide new tax credits. However, under current generally accepted accounting principles, there is no guidance on how companies should account for credits that can both reduce their income tax liability and besold to other taxpayers, according to documents prepared for the FASB meeting.

FASB sought input last year on the guidance needed for transferable tax credits. For example, some stakeholders suggested that new rules should clarify whether gains or losses from the transfer or sale of credits should be presented in a company's income statement.

FASB Chair Rich Jones, who voted in favor of the project, said examining the valuation allowance guidance would resolve any questions among board members about where information should be placed.

Looking ahead, Jones said the board needs to define the nature of tax credits: whether they are assets or financial instruments. He cautioned against making the guidance unnecessarily complex, especially regarding the transferability of credits.

"I think when someone else can claim a credit you've sold, it's usually self-evident. That should be enough," Jones said. "Do we really need to put someone in a model, or require them to calculate through a model? I don't think so."