The Harlans' 1985 tax return shows an ordinary loss of $56,069 from several partnerships, identified by name, address, and employer identification number. The record includes 1985 partnership information returns, or parts of those returns, from each of the identified partnerships, as well as stipulations as to the Harlans' shares of the partnerships' gross incomes, determined without regard to the second-tier partnership gross incomes. During 1985, Ridge was a partner in three single-tier partnerships, and Marjorie was a partner in one single-tier partnership. During 1985, Ridge was a partner in two multiple-tier partnerships: (1) Pacific Real Estate Investors Partnership (hereinafter sometimes referred to as Pacific) and (2) Carlyle Real Estate Limited Partnership-VI (hereinafter sometimes referred to as Carlyle). Pacific was a partner in at least one other partnership. Pacific's 1985 information return shows an ordinary loss of $7,705 from another partnership, identified by name and employer identification number. The record does not include information as to the amount of the gross income stated on this second-tier partnership's 1985 information return. Carlyle was a partner in several other partnerships. Carlyle's 1985 information return shows ordinary income of $674,791.81 from four other partnerships, each identified by name and employer identification number. The record does not include information as to the amounts of Carlyle's shares of the gross incomes stated on these second-tier partnerships' 1985 information returns. On one of the schedules attached to their 1985 tax return, the Harlans show their gross income as $1,216,099. This schedule is for purposes of Form 1116, part I, line 2.d.(v), and is an element of the formula used in the computation of their foreign tax credit. Nevertheless, the parties have stipulated that the gross income for purposes of section 6501(e) that is "reflected on the Harlan's 1985 Form 1040 and on the first-tier partnership returns of the partnerships in which Ridge or Marjory Harlan owned a direct interest", i.e., excluding "the flow of gross income from" the second-tier partnerships, is $1,410,077. B. The Ockelses The Ockelses filed their 1985 joint tax return on October 15, 1986. On August 11, 1992, respondent issued a notice of deficiency to the Ockelses for 1985. The 3-year period of limitations for assessment of tax under section 6501(a) with respect to the Ockelses for 1985 expired before the notice of deficiency was mailed. The Ockelses did not execute any extensions of the period of limitations on assessment with respect to 1985. The Ockelses' 1985 tax return has, attached to the Form 1040, the following: Schedules A, B, C, D, E, and SE; Forms 2688, 3468, 4797, 6198, 6251, 4684, 8283, 4255, 4562, 4868, 4952, 8082, 6248; and numerous schedules, attachments, and other documents. The Ockelses' 1985 tax return shows net income of $7,900 from several partnerships and one independent oil producer, identified by name and employer identification number. The record includes 1985 partnership information returns, or parts of those returns, from each of the identified partnerships, and a 1985 windfall profit tax information return (Form 6248) from the oil producer, as well as stipulations as to Theodore's shares of the partnerships' gross incomes, and the oil producer's gross sale price, determined without regard to the second-tier partnerships' gross incomes. During 1985, Theodore was a partner in nine single-tier partnerships. During 1985, Theodore was a partner in one multiple-tier partnership, Mission Resources Development Drilling Program-Belridge II (hereinafter sometimes referred to as Mission Resources). Mission Resources was a partner in at least one other partnership. Mission Resources' 1985 information return shows ordinary income of $286,137 from another partnership, identified by name but not otherwise. The record does not include information as to the amount of the gross income stated on this second-tier partnership's 1985 information return. The Ockelses do not claim a foreign tax credit on their 1985 tax return, and so do not have any equivalent of the Harlans' above-noted schedule. The parties have stipulated that the gross income for purposes of section 6501(e) that is "reflected on the Ockels' 1985 Form 1040 and on the first-tier partnership return [sic] of the partnerships in which the Ockels owned a direct interest", i.e., excluding "the flow of gross income from" the second-tier partnerships, is $407,819. This total includes Theodore's share of the gross receipts of the independent oil producer. C. The VeloBind Stock At the start of 1985, Ridge owned 80,000 shares of junior common stock in VeloBind that he had bought in 1983 for $3 per share. In 1985, Theodore owned 7,500 shares of junior common stock in VeloBind that he had bought in 1983 for $3 per share. In Steiner v. Commissioner, T.C. Memo. 1995-122, we determined that these shares converted to VeloBind common stock in 1985. The VeloBind common stock traded at $17 per share on February 12, 1985. In the respective notices of deficiency, respondent determined that the Harlans4 and the Ockelses5 received 1985 income from the stock conversion. Discussion I. The Parties' Contentions; Summary of Court's Conclusion Petitioners have properly raised in their petitions the affirmative defense of the statute of limitations for 1985. See Rule 39. The parties have stipulated that the 3-year period of limitations (sec. 6501(a)) expired for both the Harlans and the Ockelses before respondent issued the respective notices of deficiency. Respondent contends that the instant cases fall within an exception to the 3-year rule-the 6-year statute of limitations set forth in section 6501(e)(1)(A)—because each set of petitioners has omitted from gross income more than “25 percent of the amount of gross income stated in the return" for that set of petitioners. 4 In the notice of deficiency, respondent determined that the Harlans' income from the VeloBind stock conversion was $1,275,200. However, in respondent's answer and on brief, respondent asserts the correct income amount was $1,120,000. 5 In the notice of deficiency, respondent determined that the Ockelses' income from the VeloBind stock conversion was $119,550. However, in respondent's answer and on brief, respondent asserts the correct income amount was $105,000. Petitioners contend that the income that respondent contends was omitted from their 1985 tax returns6 is less than 25 percent of the amounts of gross income stated in their respective tax returns because (1) their tax returns are treated as having set forth their shares of the gross incomes set forth on the information returns of their first-tier partnerships and (2) the information returns of their first-tier partnerships should be treated as setting forth their first-tier partnerships' respective shares of the gross incomes set forth on the information returns of their second-tier partnerships. Respondent argues that the second-tier partnerships' information returns are to be ignored because (1) "The plain language of the Code and the regulations" require consideration of only petitioners' tax returns and not the partnerships' information returns, (2) the regulations' concept of setting forth on a tax return applies only to what is set forth on petitioners' tax returns, and (3) a contrary interpretation "would impose an excessive administrative burden on the Service and on taxpayers." Petitioners maintain that section 702(c) and the regulations plainly require that whenever it is necessary to determine the amount of a partner's gross income, that amount is to include the partner's distributive share of the partnership's gross income. As applied to the instant cases, in order to determine the amount of petitioners' gross income from the first-tier partnerships, there must first be determined the amount of each first-tier partnership's gross income. Section 702(c)'s rule then applies, petitioners contend, so that in order to determine the amount of any first-tier partnership's gross income, there must first be determined the amount of each second-tier partnership's gross income. Petitioners maintain that this rule is consistent with the "look-through" approaches of other subchapter K provisions (e.g., in secs. 1.704-3(a)(8), 1.704-2(k), and 1.752-4, Income Tax Regs.), and provisions outside subchapter K, such as sections 108(a)(1)(C) and 904(d). Under section 6501(e)(1)(A), the denominator of the 25-percent fraction is "the amount of gross income stated in the return". But the taxpayer ordinarily does not state the 6 The question of whether petitioners omitted any gross income-whether the 1985 conversions of the Velobind stock produced gross income and, if so, then in what amounts-has been set aside for determination at a later date. amount of gross income anywhere on the tax return.7 As a result, we must look through the various forms, etc., attached to the taxpayer's basic tax return form in order to identify the components of gross income that must be added together in order to determine the total amount of gross income stated in the taxpayer's tax return. It has long been accepted that, for these purposes, the information return of the taxpayer's properly identified first-tier partnership is treated as part of the taxpayer's tax return. But the first-tier partnership's information return suffers from the same "defect" in that we must look through the various forms, etc., attached to the first-tier partnership's information return in order to identify the components of gross income that must be added together in order to determine the total amount of gross income stated in the first-tier partnership's information return. Every explanation that has been drawn to our attention, or that we have discovered, as to why we must treat the properly identified first-tier partnership's information return as part of the taxpayer's tax return applies with equal force to treating the properly identified second-tier partnership's information return as part of the first-tier partnership's information return. Accordingly, we agree with petitioners' conclusion. II. Overview In general, section 6501(a)8 bars assessment of an income tax deficiency more than 3 years after the later of the date 7 As is the case in the Harlans' docket, even if the taxpayer does state such an amount and clearly labels it as such, that may not be the correct amount for purposes of sec. 6501(e)(1)(A), even if it is the correct amount for other purposes. 8 Sec. 6501 provides, in pertinent part, as follows: SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION. (a) GENERAL RULE.-Except as otherwise provided in this section, the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed (whether or not such return was filed on or after the date prescribed) *** and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. * (e) SUBSTANTIAL OMISSION OF ITEMS.-Except as otherwise provided in subsection (c)— (1) INCOME TAXES.-In the case of any tax imposed by subtitle A [relating to income taxes](A) GENERAL RULE.- If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in the return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 6 years after the return was filed. For purposes of this subparagraph (i) In the case of a trade or business, the term "gross income" means the total of the amounts received or accrued from the sale of goods or services (if such amounts are re |