Jake,an individual calendar year taxpayer,incurred the following transactions. Gross receipts $800,000 Less: Cost of sales (300,000) Net business income $500,000 Capital gain $30,000 Capital loss (90,000) (60,000) Total income $440,000 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 statute of limitations for the IRS to assess additional taxes is generally three years from the date the tax return was filed. However, if a taxpayer omits more than 25% of their gross income on their tax return, the IRS has six years to assess additional taxes.

In this case, Jake's total income reported on the tax return is $440,000. To reach the threshold for the six-year statute of limitations, his omitted gross income would need to be more than 25% of $440,000, which is $110,000.

Therefore, the correct answer is C, as the omission would need to be more than $207,500 (25% of $830,000, which is the total income including the omitted amount) to trigger the six-year statute of limitations.

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