Grajales v. Commissioner of Internal Revenue, 47 F.4th 58

Petitioner Kirgizia Grajales, a New York State employee and pension-plan member, took a distribution in 2015 and received Form 1099‑R reporting $9,025.86; she did not report the distribution on her 2015 return.
IRS issued a notice of deficiency for 2015 assessing income tax deficiency and a 10% exaction under 26 U.S.C. § 72(t) for early distribution.
The parties stipulated only $908.62 of the distribution was taxable, making the § 72(t) exaction $90.86.
Petitioner argued the § 72(t) exaction is a “penalty” (i.e., an “addition to tax” or “additional amount”) within the meaning of § 6751(c), so the initial assessment required written supervisory approval under § 6751(b); the IRS conceded it did not obtain such written approval.
The Tax Court held § 72(t) imposes a tax (not a penalty) and assessed the $90.86 exaction; the Second Circuit affirmed, finding the statutory text and Code context unambiguous that the § 72(t) exaction is a tax.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the 10% exaction under 26 U.S.C. § 72(t) is a “penalty” (including an “addition to tax” or “additional amount”) subject to § 6751(b) written‑supervisory approval	Grajales: § 72(t) adds 10% to the taxpayer’s tax and functions as an additional amount/penalty requiring § 6751(b) approval	Commissioner: § 72(t) unambiguously imposes a tax; § 6751(b)/(c) apply only to penalties/additions enumerated in chapter 68, so no written approval required	The exaction is a tax, not a penalty/addition; § 6751(b) does not apply; Petitioner liable for $90.86

Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (U.S. 2012) (distinguishing statutory label from functional analysis in constitutional context)
United States v. Butler, 297 U.S. 1 (U.S. 1936) (defining a tax as an exaction for government support)
United States v. Sanchez, 340 U.S. 42 (U.S. 1950) (taxes may deter conduct yet remain taxes)
Dada v. Mukasey, 554 U.S. 1 (U.S. 2008) (statutory interpretation must consider the whole statute)
Commissioner v. Engle, 464 U.S. 206 (U.S. 1984) (meaning of a revenue provision must be read with related sections)
Panjiva, Inc. v. U.S. Customs & Border Prot., 975 F.3d 171 (2d Cir. 2020) (statutory‑text‑first approach to interpretation)