An entity’s tax status may change from nontaxable to taxable, or vice versa. For instance, some entities, such as partnerships, certain limited liability companies, and Subchapter S corporations may change between nontaxable and taxable status as a result of changes in tax laws, changes in elections made by the entity, or changes in the manner in which the entity’s activities are conducted with respect to applicable tax laws and regulations. In the remainder of this chapter, the term nontaxable status is used to describe the tax character of entities that generally are not subject to income taxes. The term taxable status is used to describe the tax character of entities that generally are subject to income taxes.

ASC 740-10-25-32 through ASC 740-10-25-34 and ASC 740-10-40-6 provide guidance for reflecting the tax effects of changes in tax status, which generally relate to the recognition or derecognition of deferred taxes at the time of the change.