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 IRC section 6501(e)(1)(A), the statute of limitations for assessment of income taxes is six years if a taxpayer omits from gross income an amount that exceeds 25% of the gross income stated in the return. The total gross income reported by Jake is $500,000 ($250,000 + $200,000 + $50,000). Therefore, the threshold amount for the six-year statute of limitations to apply is $125,000 (25% of $500,000). The highest amount of omission from gross income that would trigger the six-year rule is $207,500 (greater than $125,000 but less than $250,000), so the answer is C.

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