8069 / What penalty applies if a taxpayer overvalues property donated to charity?

If a taxpayer underpays his tax because of a substantial valuation misstatement of property donated to charity, he may be subject to a penalty of 20 percent of the underpayment attributable to the misstatement.¹ However, this penalty applies only if the underpayment attributable to the misstatement exceeds $5,000 ($10,000 for a corporation other than an S corporation or a personal holding company).² A “substantial valuation misstatement” exists if the value claimed is 150 percent or more of the amount determined to be correct.³ If the value claimed is 200 percent or more of the amount determined to be correct, there is a “gross valuation misstatement,” which is subject to a 40 percent underpayment penalty.⁴

For guidance on the circumstances under which the disclosure on a taxpayer’s return with respect to an item or a position is adequate for the purpose of reducing the understatement of income tax under IRC Section 6662(d), see Revenue Procedure 2005-75.⁵

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1.IRC §§ 6662(a), 6662(b)(3).

2.See IRC § 6662(d).

3.IRC § 6662(e)(1)(A), as amended by PPA 2006.