Juarez (A Calendar Year Taxpayer) Donates a Painting to a Local

question 126

Multiple Choice

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) .The painting cost Juarez $2,000 ten years ago and,according to one of Juarez's friends (an amateur artist) ,now is worth $40,000.On his income tax return,Juarez deducts $40,000 as a Form 1040 charitable contribution.Upon later audit by the IRS,it is determined that the true value of the painting was $30,000.Assuming that Juarez is subject to a 25% marginal Federal income tax rate,his penalty for overvaluation is:

• A)$10,000 (minimum penalty).
• B)$5,000.
• C)$2,500.
• D)$2,000.
• E)$0.

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