ExpertHard1 markMultiple Choice
CPA · Question 04 · Area I: Ethics & Tax Procedures
A taxpayer filed their Year 1 individual income tax return on April 1, Year 2. The return reported gross income of $100,000 and tax liability of $20,000. The taxpayer inadvertently omitted $26,000 of gross income from the return. No fraud was involved. What is the latest date the IRS can assess additional tax for Year 1?
A taxpayer filed their Year 1 individual income tax return on April 1, Year 2. The return reported gross income of $100,000 and tax liability of $20,000. The taxpayer inadvertently omitted $26,000 of gross income from the return. No fraud was involved. What is the latest date the IRS can assess additional tax for Year 1?
Answer options:
A.
April 15, Year 5
B.
April 15, Year 5
C.
April 15, Year 8
D.
April 1, Year 8
How to approach this question
1. Determine if the omission is 'substantial' (>25% of gross income reported). 2. Determine the start date of the statute (later of actual filing or due date). 3. Add the applicable years (3 or 6).
Full Answer
C.April 15, Year 8✓ Correct
C
IRC §6501(e) provides a 6-year statute of limitations if the taxpayer omits from gross income an amount properly includible therein which is in excess of 25% of the amount of gross income stated in the return. Here, $26,000 > 25% of $100,000 ($25,000). The return filed on April 1 is deemed filed on the April 15 due date. Thus, the statute expires 6 years from April 15, Year 2.
Common mistakes
Calculating 25% of the *total* correct income instead of the *reported* income. Using the actual filing date for early returns.
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