Jake, an individual calendar year taxpayer, incurred the following transactions. 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

Jake, an individual calendar year taxpayer, incurred the following transactions.  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?

Quizplus · Accepted Answer

According to the IRS, the six-year statute of limitations applies when there is a substantial omission of gross income (more than 25% of the gross income reported on the tax return). In this case, if all of Jake's reported income ($450,000) is included, then the threshold for the six-year rule would be $112,500 ($450,000 x 0.25). Therefore, any omission of more than $207,500 ($112,500 plus $95,000) would trigger the six-year statute of limitations. Option C is the only choice that exceeds this amount.

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