In 2014, we were approached by several insurance companies that were heavy investors in Low-Income Housing Tax Credits (LIHTCs). These companies were leveraging tax credits with great success to lower their federal and state tax burdens. Based on this success these companies wanted to continue to invest and expand their tax credit portfolios.
However, they were still managing their tax credit accounting and reporting using manually updated Excel workbooks, a practice that doesn’t scale and presents several problems:
- The current practice of manually entering, updating, and manipulating data with spreadsheets created too many opportunities for human errors, risking material financial and regulatory consequences.
- Monthly accounting and reporting processes were labor intensive, inefficient and rushed.
- Updates to investor benefit schedules required frequent recalculations of tax credit, contribution, and amortization schedules, which put accuracy at risk.
- Multiple groups were working with multiple spreadsheets without version controls.
- Schedule BA Parts 1, 2, and 3 had to be filled out manually to meet the NAIC quarterly and annual deadlines.
These problems had recently been amplified when FASB issued Accounting Standards Update (ASU) No. 2014-01. The ruling eliminated the effective yield method for LIHTC investors, replacing it with the proportional amortization method.
Under the ASU 2014-01 ruling, many investors found it advantageous to switch to the proportional amortization method. However, the transition was cumbersome and the proportional amortization method is inherently more complicated. This all intensified and highlighted the problems of accounting for tax credit investments with spreadsheets rather than custom portfolio management software.
The problem all these companies were facing was an intense manual environment, and they were hungry for an automated solution. Although there are many software solutions on the market for other accounting processes such as payables, receivables, payroll, and fixed assets, there was no off-the-shelf software designed for tax credit investment accounting. No one had yet developed one.
These organizations wanted a system that would:
Centralize and validate data management
Share a consistent source of truth instantly among all departments
Produce real-time reports and metrics, including IRR and NPV
Calculate and update amortization schedules. Monitor and track cash payments and contribution schedules
Create journal entries in compliance with GAAP and STAT
Compile all data for Schedule BA, Parts 1, 2, and 3
Lower the risk of inaccuracies
Improve efficiency by reducing staff hours required for back-office management.
So we assembled a team of experts:
Tax credit investors and syndicators, accountants and tax professionals, and talented developers. And we worked with these insurers to create a software solution.
We formed Community Investment Solutions (CIS), a fintech startup working out of Atlanta Tech Village, one of the nation’s largest and most successful technology incubators.
And we invested more than three years of discovery, design, and development to create Tax Credit Investment Technology (TCIT), the first SaaS solution custom-developed to manage the back-office burdens of tax credit investment portfolios. It’s an accounting software solution both sophisticated and simple.