In re Bradford (14-11805)
The IRS filed a claim asserting priority status for the portion of its claim representing an exaction imposed (pursuant to I.R.C. § 72(t)) on account of a Debtor's early withdrawal from an IRA. The Debtors objected that the exaction is not entitled priority by § 507(a)(8) of the Bankruptcy Code. The IRS argued that the exaction was entitled to priority as a tax under § 507(a)(8)(A) or, alternatively, as a penalty in compensation of actual pecuniary loss under § 507(a)(8)(G). The Court held that the exaction was not a tax because it was enacted primarily to deter early withdrawal of retirement funds rather than to support the government and, bearing no relation to any actual loss to the government, was accordingly a non-pecuniary-loss penalty not entitled to priority status.