Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity). The painting cost Juarez $2,000 10 years ago and, according to one of Juarez's friends (an amateur artist), now is worth $40,000. On his income tax return, Juarez deducts $40,000 as a Form 1040 charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $30,000. Assuming that Juarez is subject to a 24% marginal Federal income tax rate, his penalty for overvaluation is:

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Juarez's penalty for overvaluation would be $0 because the penalty for overvaluation of charitable contributions applies only when the overstatement exceeds 200% of the actual value. In this case, Juarez claimed the painting was worth $40,000, but it was actually valued at $30,000, which does not exceed the 200% threshold for triggering a penalty.

Juarez (A Calendar Year Taxpayer) Donates a Painting to a Local