In Uncategorized on 01/25/2021 at 15:57

Many years ago, in the 1950s, an advertisement for a hair dye coined the memorable catchphrase “Does she…or doesn’t she? Only her hairdresser knows for sure.” This found an echo when Chief Justice Roberts upheld the Affordable Care Act of 2010, as the debate centered upon whether the impost for those who avoided the mandate was or was not a tax.

See National Federation of Independent Business [NFIB] v. Sebelius, 567 U.S. 519 (2012). The debate lingers on.

So today ex-Ch J Michael B. (“Iron Mike”) Thornton must face the same question, albeit in the context of the Section 72(t) ten-percent what-is-it. Because if it is a tax, and not a chop, then unsaddle the Section 6751(b) Boss Hoss.

And who better to engage in advanced Boss Hossery than that eminent firm of attorneys and counsellors-at-law, Frantic Frank Agostino and The Jersey Boys?

The full-dress T. C. is Kirgizia I. Grajales, 156 T. C. 3, filed 1/25/21. Of course Kirgizia was underage when she took the distribution from her New York State retirement plan. The original $9K with which IRS tagged her was reduced to $908.52 by concessions, so Kirgizia and the Jersey Boys are fighting about the ten-percent solution,  which works out to ninety (count ’em, ninety) bucks.

That won’t pay for the bagels at one of Mr Agostino’s engrossing CLE presentations (to say nothing of non-vacuum-packed hot-smoked whitefish; hi, Judge Holmes), but it’s a good question.

IRS claims, naturally, that the 10% is not a “penalty”, “addition to tax”, or “additional amount” within the meaning of section 6751(b) and (c) but rather a “tax”, and therefore no Boss Hoss need apply.

Now the caption to Section 72(t) says “additional tax,” but captions may or may not be the answer. Reaching back to Ralim S. El., ex-Ch J Iron Mike says he can consider similar terms and provisions, and descriptive matter in the IRC. See my blogpost “Mein! Was Ist Das?” 5/16/14, for the backstory on Ralim. The whole story is in 144 T.C. 9, filed 3/12/15.

And of course NFIB, above referred to, is extensively cited by ex-Ch J Iron Mike. “Explaining that the same exaction might be considered either a ‘penalty’ or a ‘tax’ depending upon the context, the Court held that the individual mandate is a ‘penalty’ for purposes of the Anti-Injunction Act but is a ‘tax’ for purposes of constitutional analysis. NFIB, 567 U.S. at 564.” 156 T. C. 3, at pp. 8-9.

If you’re into “somber reasoning and copious citation of precedent,” ex-Ch J Iron Mike is your kind of guy. Mr Agostino wants Tax Court to revisit the question because NFIB, but ex-Ch J Iron Mike won’t budge.

“Petitioner contends that we should employ the NFIB ‘functional approach’, i.e., the approach that the Court applied in its constitutional analysis, and conclude that the section 72(t) exaction is a ‘penalty’ rather than a ‘tax’. We disagree. The instant case presents no constitutional issue–neither party contends that section 72(t) is unconstitutional. Consequently the ‘functional approach’ as employed in the NFIB constitutional analysis is inapposite. Rather, because the issue before us is one of statutory construction, NFIB, 567 U.S. 544, directs us to look to the statutory text as “the best evidence of Congress’s intent”. ‘[I]t makes sense to be guided by Congress’s choice of label’ in this regard. Id. at 564. As discussed above, section 72(t) expressly labels its exaction a ‘tax’, consistently with the larger statutory structure. See El v. Commissioner, 144 T.C. at 148.” 156 T.C. 3, at pp. 10-11. (Footnote omitted).

There’s an argument about Section 72(q) annuity distributions (denominated as “penalties”) and Section 72(t) retirement plan draws (whatevers), but that’s fought out in a footnote.

There’s also some Bankruptcy Court learning that says “penalty,” but that’s for the Bankruptcy guys to sort out. Ex-Ch J Iron Mike is not going bankrupt.

In short, all NFIB says is what the Twitterers say, DSFDF, and YMMV.

Tax, not penalty.

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