Contents

OTHER ASPECTS OF DEDUCTIBLE GIVINGStill other federal tax penalties may be applied in the context of charitablegiving. Among them is the penalty for the promotion of a tax shelter. Specifically,a person is liable for a penalty if he or she does the following:• Organizes or assists in the organization ofA partnership or other entity,Any investment plan or arrangement, orAny other plan or arrangement, or• Participates, directly or indirectly, in the sale of any interest in this type ofan entity, plan, or arrangement, and• Makes, furnishes, or causes another person to make or furnish (in connectionwith such an entity or sale) A statement with respect to the allowability of any tax deduction or taxcredit, the excludability of any income, or the securing of any other taxbenefit by reason of holding an interest in the entity or participating inthe plan or arrangement, which the person knows or has reason toknow is false or fraudulent as to any material matter, or A gross valuation overstatement as to any material matter. 245In this setting, a gross valuation overstatement is any statement as to the value ofany property or services if (1) the value so stated exceeds 200 percent of theamount determined to be the correct valuation and (2) the value of the propertyor services is directly related to the amount of any tax deduction or tax creditallowable under the federal income tax law to any participant. 246 The penalty is,with respect to each tax shelter promotion activity, the greater of $1,000 or 100percent of the gross income derived (or to be derived) by the person from theactivity. 247 A tax shelter promotion activity, with respect to each entity orarrangement, is treated as a separate activity for this purpose, as is each participationin each sale. 248 The IRS is empowered to waive all or any part of this penaltywith respect to a gross valuation overstatement, on a showing that there wasa reasonable basis for the valuation and that the valuation was made in goodfaith. 249 This penalty may be imposed in addition to any other tax penalty. 250There is a penalty for aiding and abetting an understatement of tax liability.251 This penalty may be imposed on any person who:• Aids or assists in, procures, or advises with respect to the preparation orpresentation of any portion of a return, affidavit, claim, or other document,245 IRC § 6700.246 IRC § 6700(b)(1).247 IRC § 6700(a).248 IRC § 6700(a), last sentence.249 IRC § 6700(b)(2). An appellate court reversed the imposition of an overvaluation penalty, on the ground thatthe donor reasonably relied on a professional appraisal, and remanded the case for further findings. Murphy v.Commissioner, No. 92-70108 (9th Cir. Oct. 5, 1993) (unpublished opinion), rev’g & remanding 61 T.C.M.(CCH) 2935 (1991).250 IRC § 6700(c).251 IRC § 6701. 390