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

question 61

Multiple Choice

Ming (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity) .The painting cost Ming $2,000 ten years ago and, according to one of Ming's friends (an amateur artist) , is worth $40,000.On his income tax return, Ming 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 Ming is subject to a 30% marginal Federal income tax rate, his penalty for overvaluation is:

• A)$5,000.
• B)$2,000.
• C)$1,000.
• D)$0.
• E)$10,000 (minimum penalty).