a. Andy seeks your advice as to whether the IRS is barred from assessing additional income tax in the event he is audited. What is your advice?
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On a Federal income tax return filed five years ago, Andy inadvertently omitted a large amount of gross income. a. Andy seeks your advice as to whether the IRS is barred from assessing additional income tax in the event he is audited. What is your advice? c. Suppose Andy asks you to prepare his current year’s return. Would you do so? Explain. |
A
Explanation
The statute of limitations for assessing income tax is three years, beginning with the day a tax return is filed or the day the return is due, whichever comes first. However, if there is an omission from gross income on a return of more than 25% of the gross income shown on the return, the timeframe for tax assessment is extended to six years.
Because the omission was made inadvertently, the six-year statute of limitation will be applied. If in any case Andy refuses to make the disclosure and the omission has a material carryover effect to the current year. I would inform him that if he is audited, penalties, surcharges, and interest would be imposed.
If there is a deliberate attempt to avoid taxes or no return was submitted, there is no limitation of time for assessing the tax and the six-year statute of limitation will not apply.
Answer
The proper procedure would be to advise Andy to disclose the omission to the IRS.
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