Georgio,a calendar year taxpayer subject to a 33% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $300,000 for a sculpture that the IRS later valued at $120,000.The applicable overvaluation penalty is:

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The overvaluation penalty is 40% of the underpayment of taxes. In this case, the underpayment is the tax benefit Georgio received from the overvalued deduction, which is $300,000 - $120,000 = $180,000. The penalty would be 40% of $180,000, which is $72,000. However, the maximum penalty is $20,000 or 20% of the underpayment, whichever is less. In this case, 20% of $180,000 is $36,000, which is less than the maximum penalty of $20,000. Therefore, the applicable overvaluation penalty is $24,000 (20% of $180,000).

Georgio,a Calendar Year Taxpayer Subject to a 33% Marginal Federal