Because he undervalued property that he transferred by gift, Dan owes additional gift taxes of $4,000. The penalty for undervaluation does not apply in this situation, because the tax understatement was too small.

Question

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The penalty for undervaluation typically applies when the tax understatement exceeds a certain threshold, which may not be met in this case if the understatement is considered too small.

Because He Undervalued Property That He Transferred by Gift, Dan