Charitable giving penalty of overvaluation

Charitable giving is not totally tax penalty free. If you substantially over value your charitable contributions, the IRS can penalize you on overvaluation of your charitable contributions. For example, if you make a charitable contribution of property and made a substantially overvaluation of your charitable contribution, you may incur tax penalty from the IRS.

Penalty and additional tax

For a substantial over valuation of property you donate as charitable contribution, the IRS can disallow a portion of your tax deduction claims for charitable giving of appreciated property. You may also be subject to additional IRS tax penalty. The penalty associated with charitable contributions in this manner only applies if:

• the substantial overvaluations result in a tax underpayment of more than $5,000

There are two levels of tax penalty depending on the extent of the overvaluation.

20% penalty of overvaluation

If the value of your tax deduction claim from charitable giving is 200% or more of the correct amount and results in a tax underpayment exceeding $5,000, the penalty is 20% of the resulting tax underpayment.

40% penalty of overvaluation

If the value of your tax deduction claim from charitable giving is 400% or more of the correct amount and results in a tax underpayment exceeding $5,000, the penalty is 40% of the resulting tax underpayment.

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