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also sold $245 worth of tools in 1997. Therefore, in total, we
allocate $4,014.25 for the sale of tools to petitioners’ 1997 tax
year. Petitioner’s inventory list indicates that petitioner
transferred $320 worth of tools in 1998; therefore, $320
attributable to the sale of the tools will be allocated to
petitioners’ 1998 gross income. Petitioner sold $214 worth of
tools in 1999; therefore, $214 attributable to the sale of the
tools will be allocated to petitioners’ 1999 gross income.
IV. Summary of Unreported Income
In summary, petitioners improperly failed to report the
following amounts in their income:
Year Sale of tools Compensation
1996 $19,371.25 -0-
1997 4,014.25 $15,635.75
1998 320.00 21,280.00
1999 214.00 29,286.00
V. Period of Limitations for 1998
Generally, the Commissioner must assess an income tax
deficiency for a specified year within 3 years from the date the
taxpayer's return for that year was filed. Sec. 6501(a).
However, in cases where a filed return omits from gross income an
amount exceeding 25 percent of the amount stated as gross income
on the return, section 6501(e) provides that the tax may be
assessed at any time within 6 years of the filing of the return.
Petitioners argue that the 3-year period of limitations on
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