Understanding the Six-Year Tax Assessment Period for Gross Income Omissions
“Gross income omissions and the 6-year tax assessment period” discusses the complex statute of limitations for tax assessment. The main question addressed in this article is how long the Internal Revenue Service (IRS) can access the taxpayer’s history. The explanation can be found in the passages of the tax code, where the six-year statute of limitations appears. Sections 6501(a) and (b), which serve as the cornerstone of the tax statute of limitations, are discussed (Rosenberg & Schuldenfrei, 2015). These clauses specify a general three-year window during which the IRS must assert its tax assessment.
Gross Income and Special Considerations for Taxpayers
However, when a gross revenue omission crosses a threshold of 25%, the statute of limitations extends to six years (Rosenberg & Schuldenfrei, 2015). Such circumstances provide a prolonged window to closely monitor the taxpayer’s financial activities. Gross income is not included in the neat boxes of tax forms and must be determined separately in line with Section 61 of the tax code (Rosenberg & Schuldenfrei, 2015). Tax professionals must navigate the areas of alimony income, the timing of revenue reporting, passthrough entity omissions, constructive income, and income in respect of a decedent, among others.
Exceptions, IRS Review, and Burden of Proof
Afterward, the article covers several exceptions, specifically those concerning businesses regarding omission calculations. For these entities, the whole amount received or accrued, excluding expenditures, determines gross income from the sale of goods or services. However, the property sales of non-business taxpayers will be subject to a separate accounting method. According to court decisions, gross income from such sales will be assessed as net gains.
The IRS examines every part of the taxpayer’s return and adjusts taxes for the undisclosed income. If the ordinary three-year statute of limitations has passed, the IRS may bear the burden of proof (Rosenberg & Schuldenfrei, 2015). Nevertheless, the taxpayer who files an updated return will not adhere to a new, shortened statute of limitations. Section 6501(e)(1)(B)(ii) allows an exception if the taxpayer’s full and honest disclosure gives the IRS enough of a “clue” to let them know about the existence and significance of the omitted item.
Reference
Rosenberg, D. L., & Schuldenfrei, A. F. (2015). Gross income omissions and the 6-year tax assessment period. Journal of Accountancy. Web.