IRS Publication 561 — Determining the Value of Donated Property
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“40% penalty. The penalty is 40%, rather than 20%, if: • The value or adjusted basis claimed on the return is 200% or more of the correct amount, and • Y ou underpaid your tax by more than $5,000 because of the misstatement. • Y our deduction for a qualified conservation contribution was disallowed and you un- derpaid your tax.”
There are a number of problems in determining the FMV of donated property.
Unusual Market Conditions The sale price of the property itself in an arm’s-length transaction in an open market is often the best evidence of its value. When you rely on sales of comparable property, the sales must have been made in an open market. If those sales were made in a market that was artificially supported or stimulated so as not to be truly representative, the prices at which the sales were made will not indicate the FMV . For example, liquidation sale prices usually do not indicate the FMV . Also, sales of stock under unusual circumstances, such as sales of small lots, forced sales, and sales in a restricted market, may not represent the FMV .
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