Latka Novatny Gave You the Following Information to Use in the Preparation

Question

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The Answer is • Will Latka be liable for a penalty if the $40,000 is excluded from his gross income?
• What statute of limitations will apply?
If you are correct in believing that substantial authority exists for excluding the $40,000, Latka should not subjected to any penalties, even if his return is audited and he agrees to include the $40,000 in his income.
Unless a disclosure concerning the $40,000 is attached to Latka's return, the statute of limitations will be si years (from the date he files his return, or from the due date for the return if later) instead of the regular three years. The reason is that he will have omitted from this gross income more than 25% of the $140,000 of gross income reported on his return (25% × $140,000 = $35,000). Perhaps Latka would like to make a disclosure to have a shorter statute of limitations. This might be the case, for example, if some of the deductions he claimed fall into the gray area.

Latka Novatny Gave You the Following Information to Use in the Preparation

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