Madison and Robyn sold a piece of property for $250,000, claiming that their basis was $100,000, and reported a taxable gain of $150,000. Their 2019 return filed in February 2020 reported gross income of $250,000. Madison and Robyn later determine that the property's basis was actually $25,000, not $100,000, resulting in a $75,000 understatement of income on the 2019 return. The statute of limitations period in which the IRS may assess additional tax in this situation expires on April 15 of what year?
A)2022
B)2023
C)2026
D)There is noexpiration date for the statute of limitations in this context.

Question

Quizplus · Accepted Answer

The statute of limitations for the IRS to assess additional tax is generally 3 years from the date the return was filed. However, if there is a substantial understatement of income (25% or more), the statute of limitations extends to 6 years. In this case, the understatement of $75,000 on reported income of $250,000 is more than 25%, extending the statute to 6 years from the filing date in February 2020, which expires in April 2026.

Madison and Robyn Sold a Piece of Property for $250,000