6-year IRS assessment for >25% omission of gross income

Answer C. Because Jordan omitted more than 25% of the gross income stated on the return, the normal 3-year assessment period is extended to 6 years. The omitted $60,000 is 30% of the $200,000 reported gross income (60,000/200,000), which exceeds 25%. A return filed before its due date is generally treated as filed on the due date for statute-of-limitations purposes, so the 6-year period runs from April 15, 20X2 through April 15, 20X8.

Why not A: This reflects the normal 3-year assessment period (three years after the return due date), but it ignores the substantial-omission rule: omitting more than 25% of gross income generally extends the assessment period to 6 years.

Why not B: This applies a 6-year period counted from the actual filing date. It is tempting, but when a return is filed before its due date it is generally treated as filed on the due date for statute-of-limitations purposes, so the correct cutoff is April 15, 20X8.

Why not D: This confuses the unlimited period that can apply in cases of fraud or failure to file with the substantial-omission rule. Here Jordan filed a return and there is no allegation of fraud, so the omission extends the assessment period to 6 years rather than eliminating it.

Answer D. The $60,000 omission compared with the $200,000 reported on the return equals 30%, exceeding the 25% threshold that triggers the six-year assessment period. Because Palmer filed the return late (September 20, 20X2) and did not extend the assessment period, the six-year limit runs from the filing date and expires on September 20, 20X8.

Why not A: This reflects measuring the normal three-year period from the original due date. It is incorrect because the omission exceeds 25% (triggering the six-year rule) and because a late-filed return is measured from the actual filing date, not the original due date.

Why not B: This correctly measures from the actual filing date for a late return but applies the normal three-year statute. Because the omission exceeds 25% of the gross income stated on the return, the six-year statute applies instead.

Why not C: This applies the six-year period but anchors it to the original due date. Since Palmer filed after the due date and did not extend the assessment period, the limitations period begins on the filing date, not the original due date.

Answer A. The general rule is that the IRS must assess tax within 3 years after a return is filed. Under the exception for substantial omission, if a taxpayer omits from gross income an amount in excess of 25% of the gross income stated on the return and it is not adequately disclosed, the assessment period is extended to 6 years; because B omitted 28%, the 6‑year period (through April 15, 20X8) is still open on September 1, 20X6.

Why not B: This is tempting if a candidate thinks an amended return restarts the statute. It generally does not. An original return filed before the due date is treated as filed on the due date (April 15, 20X2), so the normal 3‑year assessment period expired April 15, 20X5.

Why not C: Although filing under a valid extension shifts the filing date later (and thus the 3‑year window), the limitation still runs 3 years from the actual filing date (Oct 15, 20X2) and was therefore closed on Oct 15, 20X5; the amended return does not restart the 3‑year period.

Why not D: A written consent can extend the assessment period, but here the consent only preserved the period through June 30, 20X6. An attempted assessment on September 1, 20X6 would therefore be untimely.

Answer A. Allen omitted $60,000 of $200,000, 30%, which exceeds the 25% threshold and thus triggers the 6-year assessment period; that period (measured from his filing) remains open on August 15, 20X6. Baker's omission was $30,000 (15%), so the normal 3-year assessment period applied and ran from his filing date of July 1, 20X3; it expired on July 1, 20X6.

Why not B: This distractor correctly recalls that a late-filed return's 3-year period runs from the filing date, but it ignores the separate 6-year rule for returns omitting more than 25% of gross income. Allen's 30% omission keeps his assessment window open.

Why not C: This choice confuses any understatement with the specific >25% omission rule that extends the period to 6 years. Baker's omission was only 15%, so his 3-year period had already closed by August 15, 20X6.

Why not D: This is tempting if a candidate applies only the default 3-year rule. However, Allen's omission exceeded 25% of stated gross income, extending the assessment period to 6 years and leaving his return open.

Answer B. The general assessment statute is three years from the date the return is filed, but a return filed before its due date is treated as filed on its due date for limitations purposes. The omitted $60,000 equals 25% of the $240,000 gross income reported, so the extended six-year period (which applies only when the omission exceeds 25% of gross income stated) does not apply. Because the April 1, Year 2 return is treated as filed on the April 15, Year 2 due date, the IRS has until April 15, Year 5.

Why not A: This mistakes the statute-measurement date as the actual early filing date. For limitations purposes an early-filed return is treated as filed on its due date (April 15, Year 2 here), so the three-year period runs to April 15, Year 5, not April 1, Year 5.

Why not C: This combines two errors: applying the six-year extension when the omitted amount is exactly 25% (the six-year rule applies only when the omission exceeds 25% of gross income stated) and measuring from the actual early filing date rather than the return's due date.

Why not D: This distractor correctly measures from the due date but wrongly assumes the six-year period applies. Because the omitted amount is exactly 25% of the gross income reported, the six-year extension (which requires the omission to exceed 25%) does not apply.