Contents

OTHER ASPECTS OF DEDUCTIBLE GIVING• Application of penalties when the value of the gift property was deliberatelyinflated and the transactions were tax-motivated 266• Application of the negligence penalty when the parties participated in acircular flow-of-funds arrangement, including charitable gifts, designedfor tax avoidance 267• Application of the penalty for substantial underpayment of federalincome tax when a charitable gift of gravesites was made as part of a taxavoidance promotion program. 268• Application of the valuation overstatement penalty in a case involving acharitable contribution of wild game trophy mounts. 269There is a penalty that may be imposed on a person who (1) aids or assistsin, procures, or advises with respect to the preparation or presentation of anyportion of a return, affidavit, claim, or other document; (2) knows (or has reasonto believe) that the portion will be used in connection with any material matterarising under the federal tax laws; and (3) knows that the portion (if so used)would result in an understatement of the liability for tax of another person. Thepenalty applies with respect to each document. 270 The amount of the penalty forpersons other than corporations is $1,000; for corporations, the amount of thepenalty is $5,000. 271 This penalty is applicable, for example, in an instance of violationof the charitable contribution substantiation rules. 272There is a penalty for violation of the rules concerning disclosures to donorsin the case of quid pro quo contributions. 273 Penalties of $10 per contribution,capped at $5,000 per particular fundraising event or mailing, may be imposedon charitable organizations that fail to make the required disclosure, unless thefailure was due to reasonable cause. The penalty applies if an organization eitherfails to make any disclosure in connection with a quid pro quo contribution ormakes a disclosure that is incomplete or inaccurate (such as an estimate notdetermined in good faith of the value of goods or services furnished to thedonor). 274266 Angell v. Commissioner, 52 T.C.M. (CCH) 939 (1986).267 Allen v. Commissioner, 91-1 U.S.T.C. 50,080 (9th Cir. 1991), aff’g 92 T.C. 1 (1989).268 Klavan v. Commissioner, 66 T.C.M. (CCH) 68 (1993); Weiss v. Commissioner, 65 T.C.M. (CCH) 2768 (1993).269 Engel v. Commissioner, 66 T.C.M. (CCH) 378 (1993).270 IRC § 6701(a).271 IRC § 6701(b).272 See § 21.1(b). This penalty was assessed against an individual who had a practice of providing donors of usedvehicles with documentation supporting a charitable deduction based on full fair market value when in fact heknew that “many of the donated vehicles could only be sold for salvage or scrap.” Tech. Adv. Mem.200243057.273 IRC § 6714. These contributions are the subject of § 22.2.274 H. Rep. No. 103-213, 103d Cong., 1st Sess. 566 (1993). 392