This is from the IRS Publications :-
Under section 6501(e) of the Tax Code and section 301.6501(e)-1 of the Tax Regulations the statute of limitations is 6 years if the taxpayer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS.
Taxpayers who omit an income amount in excess of 25% of reported gross income. In such an instance, the IRS can assess for an additional three years for potential examination. During this six year period the IRS may assess the tax or begin a proceeding in court without assessment to collect the tax. In this instance, the IRS must prove that the omitted income was includible in the taxpayer’s gross income for the year and that it did, in fact, exceed the 25% threshold. If so, the six year limitation applies to all items affecting the amount of taxes owed, not just income items.
Depreciation deductions, which are normally not subject to assessment beyond three years, is just one example of an item other than income that could be reexamined if there is a substantial omission of gross income.
25% Omission
The tax may be assessed within 6 years after the original return was filed (IRC Section 6501(e)(1)), if the taxpayer omits:
More than 25% of the gross income reported on original Form 1040, 1041, 1120, Form 990-C, 990-T and 990-PF (IRC Section 6501(e)(1))
More than 25% of tax on original Form 720 and Form 5330 for excise tax (IRC Section 6501(e)(3))
Includable items in excess of 25% of the gross estate on original Form 706 (IRC Section 6501(e)(2))
Gifts in excess of 25% of the total gifts on original Form 709 (IRC Section 6501(e)(2))
FAR 05/27/14; 786/110 - Done !
.