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returns are not considered when determining the amount of omitted
gross income under section 6501(e)(1)(A).10
Petitioners reported $6,709.91 and $20,289.03 of gross
income in their 1995 and 1996 returns, respectively.11 Twenty-
five percent of these figures is $1,677.48 and $5,072.26,
respectively. Petitioners concede that gross income of $56,272
and $72,587 was omitted from their individual returns for 1995
and 1996, respectively. Thus, regardless of whether some or all
of this omitted income was reported in the returns of the
petitioner trusts, respondent has met his burden of showing that
petitioners omitted from gross income an amount in each year that
exceeded 25 percent of the gross income reported in petitioners’
1995 and 1996 returns. Accordingly, the 6-year period of
limitations set forth in section 6501(e)(1)(A) applies to
petitioners’ 1995 and 1996 tax years. Because the notice of
10 Petitioners also argue that disclosure must have been
adequate because respondent was in fact sufficiently aware of
petitioners’ use of trusts in 1995 and 1996 to make a criminal
referral before expiration of the 3-year period of limitations
for those years. The test, however, is not whether petitioners’
returns were capable of arousing suspicion; the test is whether
the disclosure in the returns was adequate to apprise respondent
of the nature and amount of the omitted income.
11 Respondent concedes, and petitioners have not disputed,
these figures, which include amounts reported on certain
partnership returns as well as amounts reported as tax-exempt
interest. As it would not affect the result in these cases, we
assume (without deciding) that tax-exempt interest may constitute
“gross income stated in the return” for purposes of sec.
6501(e)(1)(A).
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