Jake, an individual calendar year taxpayer, incurred the following transactions. $\begin{array}{lc}
\text { Gross receipts } && \$ 800,000 \
\text { Less: Cost of sales } && (300,000) \
\text { Net business income } && \$ 500,000\
\text { Capital gain } & \$ 30,000 \
\text { Capital loss } & (90,000)&(60,000)\
\text { Total income } & & \$440,000\
\end{array}$ Assuming that any error in timely reporting these amounts was inadvertent, how much omission from gross income would be required before the six-year statute of limitations would apply?

Question

Quizplus · Accepted Answer

The six-year statute of limitations applies if the omission from gross income is more than 25% of the gross income stated on the return. In this case, the gross income stated on the return is $440,000. 25% of $440,000 is $110,000. Therefore, the omission from gross income would have to be more than $110,000 for the six-year statute of limitations to apply.

Jake, an Individual Calendar Year Taxpayer, Incurred the Following Transactions