Income Tax: overvaluation of charitable artwork donation
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Cheryl (a calendar year taxpayer) donates a statue to a local art museum (a qualified charity). The statue cost Cheryl $13,000 ten years ago and, according to one of Cheryl's friends (an amateur artist), is worth $50,000. On her income tax return, Cheryl deducts $50,000 as a charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $20,000. Assuming that Cheryl is subject to a 35% marginal income tax rate, what is her penalty for overvaluation?
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Solution Summary
The problem is concerned with the tax treatment for a donation of art and how an improper classification triggers an IRS audit.
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According to IRS Form 8283, Section B any donations of $5,000 or greater require a professional appraisal to be made with a copy of the appraisal and a statement as to ...
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