Michelle,a calendar year taxpayer subject to a 25% marginal Federal income tax rate,claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000.The applicable overvaluation penalty is:

Question

Quizplus · Accepted Answer

The overvaluation penalty is 30% of the amount by which the claimed value exceeds the correct value. In this case, the claimed value is $275,000 and the correct value is $200,000, so the overvaluation is $75,000. The overvaluation penalty is therefore 30% of $75,000, which is $22,500. However, the maximum overvaluation penalty is $5,000, so the actual penalty is $5,000.

Michelle,a Calendar Year Taxpayer Subject to a 25% Marginal Federal