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Appealed from: United States Court of Federal Claims Judge Diane G. Weinstein

For many years the Internal Revenue Code has provided that if the owner of an Individual Retirement Account (“IRA”) withdraws all or part of it for an impermissible (non-retirement related) purpose or before reaching a certain age, there will be a ten percent tax on the withdrawal. In the summer of 1997 Congress created a second kind of IRA (effective January 1, 1998) — the so-called Roth IRA — and provided that ordinary IRAs could be “rolled over” into Roth IRAs. The form that the legislation took, however, meant that if funds from a regular IRA were rolled over into a Roth IRA and then immediately withdrawn, the ten percent tax would not apply. After Congress discovered this situation, in July 1998 it subjected such withdrawals to the ten percent tax, effective January 1, 1998 (the effective date of the basic legislation).

In the interval the appellant Mr. Kitt rolled over his regular IRA into a Roth IRA, and then withdrew most of the money in the latter for a non-permissible purpose and before reaching the specified age. Mr. and Mrs. Kitt challenged the application of the ten percent tax to the withdrawal as unconstitutional because it is: (1) a retroactive imposition of a penalty that denies them due process, in violation of the Fifth Amendment, (2) a taking of their property, for which they are entitled to just compensation under that amendment, and (3) the imposition of an excessive fine, in violation of the Eighth Amendment. The United States Court of Federal Claims rejected these contentions. We affirm.

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