Gloria,a calendar year taxpayer subject to a 35% marginal income tax rate,claimed a charitable contribution deduction of $800,000 for a sculpture that the IRS later valued at $100,000.The applicable overvaluation penalty is:

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The overvaluation penalty is 20% of the disallowed amount. The disallowed amount is $700,000 ($800,000 claimed - $100,000 IRS value). Therefore, the penalty is 20% of $700,000, which is $140,000. However, the maximum penalty is $98,000, which is 40% of the tax underpayment due to the overvaluation ($700,000 x 35% x 40%).

Gloria,a Calendar Year Taxpayer Subject to a 35% Marginal Income