Contents

§ 10.14 PENALTIES• Knows (or has reason to believe) that the portion of a document will be usedin connection with any material matter arising under the federal tax laws,and• Knows that the portion of a document (if so used) would result in anunderstatement of the liability for tax of another person. 252 This penaltymay be separately levied with respect to each document. 253For this purpose, the term procures includes (1) ordering (or otherwise causing) asubordinate to do an act and (2) knowing of, and not attempting to prevent, participationby a subordinate in an act. 254 In general, the amount of this penalty is$1,000. 255 If a document relates to the tax liability of a corporation, however, theamount of the penalty is $10,000. 256 This penalty may be applied whether or notthe understatement is with the knowledge or consent of the persons authorizedor required to present the return, affidavit, claim, or other document. 257Still other pertinent penalties are those imposed for a failure to file a taxreturn, 258 failure to file a correct information return, 259 failure to furnish a correctpayee statement, 260 or failure to comply with other information reportingrequirements. 261It may appear unlikely or even farfetched to think that a donor or someoneserving on behalf of a charitable organization—or a charitable organizationitself—could reasonably be subjected to one or more of these penalties. They havebeen so applied by the courts in that context, however. There have been severalcourt opinions concerning the application of these penalties in the charitable givingsetting under pre-1990 law. 262 These include:• Application of an underpayment penalty when a lawyer intentionallydisregarded the tax regulations in claiming a charitable contributiondeduction for gifts of legal services 263• Application of penalties when the claimed values were based on “financialfantasies” 264• Application of a penalty when the gift property was valued at $45,600and the court found the value to be $4,211 265252 IRC § 6701(a).253 Id.254 IRC § 6701(c)(1). A subordinate is a person (whether or not a director, officer, employee, or agent of the personinvolved) over whose activities the person has direction, supervision, or control. IRC § 6701(c)(2).255 IRC § 6701(b)(1).256 IRC § 6701(b)(2).257 IRC § 6701(d). A person furnishing typing, reproduction, or other mechanical assistance with respect to a documentis not treated as having aided or assisted in the preparation of the document by reason of this kind ofassistance. IRC § 6701(e).258 IRC § 6651(a)(1).259 IRC § 6721.260 IRC § 6722.261 IRC § 6723.262 IRC § 6662 took effect with respect to returns due after 1989.263 Grant v. Commissioner, 84 T.C. 809 (1985), aff’d, 800 F.2d 260 (4th Cir. 1986).264 Snyder v. Commissioner, 86 T.C. 567 (1986). See also Parker v. Commissioner, 86 T.C. 547 (1986).265 Tallal v. Commissioner, 52 T.C.M. (CCH) 1017 (1986). 391