14.16 Penalty for Substantial Overvaluation of Property
If the IRS disallows a portion of your claimed deduction for appreciated property on the grounds that you have overvalued it, you may be subject to a penalty as well as additional tax. Depending on the extent of the overvaluation, a 20% or 40% penalty may apply. No penalty is imposed unless the overvaluation results in a tax underpayment exceeding $5,000.
20% penalty.
If the claimed value of donated property is 150% or more of the correct value, the penalty is 20% of the tax underpayment resulting from the overvaluation, provided the underpayment exceeds $5,000.
40% penalty.
If the claimed value of donated property is 200% or more of the correct value, the penalty is 40% of the tax underpayment resulting from the overvaluation, provided the underpayment exceeds $5,000.
Reasonable cause exception for relying on appraisal.
The 20% penalty (but not the 40%) may be avoided under a reasonable cause exception if you relied on a qualified appraisal prepared by a qualified appraiser and, in addition, you made a good faith investigation of the value of the property.
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