Maureen, a calendar year taxpayer subject to a 35% marginal tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:

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The overvaluation penalty is 30% of the amount by which the claimed value exceeds the correct amount. In this case, the claimed value is $250,000 and the correct amount is $200,000, so the overvaluation is $50,000. The overvaluation penalty is therefore 30% of $50,000, or $15,000. However, the penalty is reduced by the amount of tax saved by the overvaluation. In this case, the taxpayer saved $35,000 in taxes by claiming the overvalued deduction. Therefore, the overvaluation penalty is $15,000 - $35,000 = $0.

Maureen, a Calendar Year Taxpayer Subject to a 35% Marginal