Part 3 Building the Case: Authority, Deadlines and Notices question: taxpayer omits from gross income

Part 3Building the Case: Authority, Deadlines and Notices

The assessment period is extended to 6 years when a taxpayer omits from gross income an amount that is more than:

A 10% of the gross income stated on the return
B 25% of the gross income stated on the return
C $5,000 of income from any source
D 50% of the tax shown on the return

Show the answer and explanation

Answer: B. 25% of the gross income stated on the return

Section 6501(e)(1)(A) gives the IRS 6 years to assess when the taxpayer omits gross income in excess of 25% of the gross income stated on the return (or more than $5,000 of income from specified foreign financial assets). Overstated basis can count as an omission. Fraud or no return leaves the period open indefinitely. Source: IRC 6501(e)(1)(A); Pub. 556. Tax year: 2025 (law as of 31 Dec 2025).

Common mistake

Confusing the 25% omission test with the 10% substantial understatement test.

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Original study material mapped to the public IRS SEE content outlines; not a real exam question.Not affiliated with or endorsed by the IRS or PSI. Verify figures and rules against current guidance before relying on them.