Grajales v. Commissioner of Internal Revenue, No. 21-1420 (2d Cir. 2022)
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Petitioner petitioned the United States Tax Court to redetermine her income tax deficiency after the Commissioner of Internal Revenue concluded that she was subject to a 10-percent exaction under 26 U.S.C. Section 72(t) of the Internal Revenue Code for early distributions she made from her pension plan. Petitioner argued that she is not liable for the 10-percent exaction under Section 72(t) because it is a penalty, an additional amount, or an addition to tax within the meaning of Section 6751(c) of the Internal Revenue Code and that the Commissioner failed to obtain written supervisory approval for the initial determination to impose the exaction, as required by Section 6751(b). The United States Tax Court ruled that the 10-percent exaction under Section 72(t) is not subject to the written supervisory requirement because it is a tax, not a penalty, an additional amount, or an addition to tax, and Petitioner is liable for the 10-percent exaction.
The Second Circuit affirmed the Tax Court’s judgment. The court explained that the plain and unambiguous language of Section 72(t) establishes that the Exaction is a tax, not a penalty, an additional amount, or an addition to tax within the meaning of Section 6751(c) that requires written supervisory approval. Thus, Petitioner is liable for the Exaction.
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