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Q&A: Can We Be Penalized for an Inflated Property Value?

What donors should know about penalties for overvaluations.

Are there penalties that apply to church members who donate property to their church and claim an inflated value (in excess of the property's fair market value) when computing their charitable contribution deduction?

The charitable contribution for donations of property is generally the fair market value of the property at the time of the contribution. However, if the property has increased in value, you may have to make some adjustments to the amount of your deduction.

Donors are subject to a penalty if they overstate the value or adjusted basis of donated property. The penalty is 20 percent of the amount by which the donor underpaid his or her tax because of the overstatement, if:

  1. The value or adjusted basis claimed on your return is 150 percent or more of the correct amount, and
  2. The donor underpaid income taxes by more than $5,000 because of the overstatement.

The penalty is 40 percent, ...

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  • November 1, 2011

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