The general rule of thumb, is that the IRS can only go back three years. But, there are times when IRS can go back more than three years to seek taxes. If over 25% of gross income is omitted from a return, then IRS has six years to assess the tax, unless the filer disclosed the omission on the return.
In this case, a couple reported $1.5 million of capital gain on their return instead of the proper $4.9 million.
The IRS sent out the deficiency notice after the usual three-year limitation period but before the end of the six-year period. The couple argued that the six-year period does not apply because they didn’t fully omit the gain, but only understated it.
Not so, says the Tax Court, giving IRS their victory here.
Pragias, TC Memo. 2021-82