Compute the penalty the IRS can assess against Singh

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Problem - Singh, a qualified appraiser of fine art and other collectibles, was advising Colleen when she was determining the amount of the charitable contribution deduction for a gift of a sculpture to a museum. Singh sanctioned a $900,000 appraisal, even though he knew the market value of the piece was only $300,000. Colleen assured Singh that she had never been audited by the IRS and that the risk of the government questioning his appraisal was negligible.

But Colleen was wrong, and her return was audited. The IRS used its own appraisers to set the value of the sculpture at $400,000. Colleen is in the 32% Federal income tax bracket. Singh's fee for preparing the appraisal was $20,000.

Required -

a. Compute the penalty the IRS can assess against Singh. (Do not consider the valuation penalty as to Colleen's return.)

b. What is the penalty if Singh's appraisal fee was $7,500 (not $20,000)?

c. Construct a Microsoft Excel formula that would generate the correct answer for parts (a) and (b).

Reference no: EM132650767

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