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There is an exception for the substantial understatement of
income. Section 6501(e) provides in pertinent part:
SEC. 6501(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–
(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 amount is
disclosed in the return, or in a
statement attached to the return, in a
manner adequate to apprise the Secretary
of the nature and amount of such item.
Respondent bears the burden of proving by a preponderance of the
evidence that: (1) The Bensons omitted from gross income an
amount in excess of 25 percent of the amount of gross income
reported on their return, and (2) that the omitted income was
properly includable in gross income. Burbage v. Commissioner, 82
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