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II. Overview
In general, section 6501(a)8 bars assessment of an income
8Sec. 6501 provides, in pertinent part, as follows:
SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.
(a) General Rule.--Except as otherwise provided in this
section, the amount of any tax imposed by this title shall
be assessed within 3 years after the return was filed
(whether or not such return was filed on or after the date
prescribed) * * * and no proceeding in court without
assessment for the collection of such tax shall be begun
after the expiration of such period.
* * * * * * *
(e) Substantial Omission of Items.--Except as otherwise
provided in subsection (c)--
(1) Income Taxes.--In the case of any tax imposed
by subtitle A [relating to income taxes]--
(A) General rule.--If the taxpayer omits from
gross income an amount properly includible therein
which is in excess of 25 percent of the amount of
gross income stated in the return, the tax may be
assessed, or a proceeding in court for the
collection of such tax may be begun without
assessment, at any time within 6 years after the
return was filed. For purposes of this
subparagraph--
(i) In the case of a trade or business,
the term “gross income” means the total of
the amounts received or accrued from the sale
of goods or services (if such amounts are
required to be shown on the return) prior to
diminution by the cost of such sales or
services; and
(ii) In determining the amount omitted
from gross income, there shall not be taken
into account any amount which is omitted from
gross income stated in the return if such
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