# ASC 740-10-40: Income Taxes — Overall — 40 Derecognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/740/10/#40-derecognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:452bc1fbac61209049cedd37bc2907e67b6b5f0f828fb45eec97930642cd76f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 740-10-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/740/10/#40-derecognition) SEC content: no ##### [740-10-40-1](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:ef6540ef9191515f058e90b6aefb3b5066d002209d6b0d889d3e048b183b7cd0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Section 740-10-25 addresses recognition of current and deferred income tax accounts, including accrued interest and penalties. The guidance in this Section addresses certain subsequent events that result in derecognizing previously recognized amounts and is incremental to the guidance for recognition. #### Tax Position No Longer Meets Recognition Criterion ##### [740-10-40-2](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:667fb0c32e900c00c1a3c7e46ff0768bb37fcae5af9692de9781d29b0837cd86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall derecognize a previously recognized [tax position](https://asc.understandingaccounting.org/glossary/t/#tax-position "A position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. A tax position can result in a permanent reduction of income taxes payable, a deferral of income taxes otherwise currently payable to future years, or a change in the expected realizability of deferred tax assets. The term tax position also encompasses, but is not limited to: A decision not to file a tax return An allocation or a shift of income between jurisdictions The characterization of income or a decision to exclude reporting taxable income in a tax return A decision to classify a transaction, entity, or other position in a tax return as tax exempt An entity's status, including its status as a pass-through entity or a tax-exempt not-for-profit entity.") in the first period in which it is no longer more likely than not that the tax position would be sustained upon examination. Use of a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") is not a permitted substitute for derecognizing the benefit of a tax position when the more-likely-than-not recognition threshold is no longer met. Derecognition shall be based on management's best judgment given the facts, circumstances, and information available at the reporting date. Paragraph [740-10-30-7](https://asc.understandingaccounting.org/asc/740/10/#740-10-30-7) explains that the reporting date is the date of the entity's most recent statement of financial position. Subsequent changes in judgment that lead to derecognition shall result from the evaluation of new information and not from a new evaluation or new interpretation by management of information that was available in a previous financial reporting period. ##### [740-10-40-3](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:d9680943d38eba1c70aceca52f8b863f281d551e4305b4cef7a8c3f1bc008a72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity that had previously considered a tax position effectively settled becomes aware that the taxing authority may examine or reexamine the tax position or intends to appeal or litigate any aspect of the tax position, the tax position is no longer considered effectively settled and the entity shall reevaluate the tax position in accordance with the requirements of this Subtopic for tax positions. ##### [740-10-40-4](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:57ea5274608937f3f76d51d6320496ad9431500bb580cfc40a9ff4d1a9448cf6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [740-10-25-15](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-15) requires that a change in judgment that results in derecognition of a tax position taken in a prior annual period (including any related interest and penalties) shall be recognized as a discrete item in the period in which the change occurs. Paragraph [740-270-35-6](https://asc.understandingaccounting.org/asc/270/740/#270-740-35-6) addresses the different accounting required for such changes in a prior interim period within the same fiscal year. #### Accrued Interest and Penalties Related to Tax Positions Subsequently Meeting the Recognition Criteria ##### [740-10-40-5](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:074a715b9aa562e997ccfd9f6cf1ac38b74f2526c2b63b3813aef5410e1181a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A tax position that did not meet the recognition requirements of paragraph [740-10-25-6](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-6) may have resulted in the accrual of interest and penalties under the requirements of paragraphs [740-10-25-56 through 25-57](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-56) . Previously recognized interest and penalties associated with tax positions that subsequently meet one of the conditions in paragraph [740-10-25-8](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-8) shall be derecognized in the period that condition is met. #### Cessation of an Entity's Taxable Status ##### [740-10-40-6](https://asc.understandingaccounting.org/asc/740/10/#740-10-40-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:16:35.663Z to 2026-09-10T01:16:35.663Z Record version: sha256:d054d20adec2e77fe796090596d14c07c9c9749b2274abd2222974b1105c731c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [deferred tax liability](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-liability "The deferred tax consequences attributable to taxable temporary differences. A deferred tax liability is measured using the applicable enacted tax rate and provisions of the enacted tax law.") or [asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") shall be eliminated at the date an entity ceases to be a taxable entity. As indicated in paragraph [740-10-25-33](https://asc.understandingaccounting.org/asc/740/10/#740-10-25-33), the effect of an election for a voluntary change in tax status is recognized on the approval date or on the filing date if approval is not necessary and a change in tax status that results from a change in tax law is recognized on the enactment date.