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

What donors should know about penalties for overvaluations.

Richard R. Hammar, Attorney, CPA
Bio
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.
  3. The penalty is 40 percent, rather than 20 percent, if:
  5. The value or adjusted basis claimed on the donor’s tax return is 200 percent or more of the correct amount, and
  6. The donor underpaid income taxes by more than $5,000 because of the overstatement.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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