Jake, an individual calendar year taxpayer, incurred the following transactions. $\begin{array} { l }
\text {Gross receipts }&&\$800,000\
\text { Less: Cost of sales}&&(300,000)\
\text {Net business income }&&\$500,000\
\text {Capital gain }&\$30,000\
\text {Capital loss }&(90,000)&(60,000)\
\text {Total income }&&\$440,000\
\end{array}$
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

Jake, an individual calendar year taxpayer, incurred the following transactions. $\begin{array} { l  } 
 \text {Gross receipts }&&\$800,000\
 \text { Less: Cost of sales}&&(300,000)\
 \text {Net business income }&&\$500,000\
 \text {Capital gain }&\$30,000\
 \text {Capital loss }&(90,000)&(60,000)\
 \text {Total income }&&\$440,000\
\end{array}$
 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?

Quizplus · Accepted Answer

The six-year statute of limitations applies when 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, so the omission from gross income would have to be more than $110,000 (25% of $440,000) for the six-year statute of limitations to apply. The only answer choice that meets this requirement is D, which states that the omission from gross income would have to be more than $207,500.

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