ExpertHard1 markMultiple Choice
CPA · Question 04 · Area I: Ethics & Tax Procedures
A taxpayer filed their Year 1 individual income tax return on March 15, Year 2. The return showed a gross income of $100,000. 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 March 15, Year 2. The return showed a gross income of $100,000. 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.
March 15, Year 5
B.
April 15, Year 5
C.
March 15, Year 8
D.
April 15, Year 8
How to approach this question
Step 1: Determine the start of the statute (later of due date or filing date). Step 2: Calculate omission % ($26k/$100k = 26%). Step 3: Apply rule (3 years normally, 6 years if >25% omission).
Full Answer
D.April 15, Year 8✓ Correct
D
The general statute of limitations is 3 years. However, if the taxpayer omits gross income exceeding 25% of the gross income stated on the return ($26,000 > 25% of $100,000), the statute is extended to 6 years. For early filed returns, the clock starts on the due date (April 15, Year 2). Therefore, the assessment period ends April 15, Year 8.
Common mistakes
Using the filing date (March 15) instead of the due date (April 15) for early returns; failing to check the 25% omission test.
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