Question

Marcella (a calendar year taxpayer) purchased a sculpture for $5,000. When the sculpture is worth $12,000 (as later determined by the IRS), Marcella donates it to the Peoria Museum of Art, a public charity. Based on the appraisal of a friend, Marcella deducts $38,000 for the donation. Because Marcella was in the 24% marginal Federal income tax bracket, overstating the deduction by $26,000 results in a tax underpayment of $6,240.

Compute Marcella's overvaluation penalty.

Answer 1

$2,496

Step-by-step explanation:

Marcella's overvlauation = $38,000 - $12,000 = $26,000

It is more than twice the fair value of the sculpture ($12,000 x 2 = $24,000), so her penalty will be doubled.

The normal penalty = 20% x $6,240 = $1,248

Double the penalty = $1,248 x 2 = $2,496