District Court Holds the FBAR Willful Penalty Requires Opportunity for Pre-Assessment Jury Trial (8/24/25)

I have written before on SEC v. Jarkesy, 603 U.S. 109 (2024), Preliminary Print here, in which the Court held that the Constitution’s Seventh Amendment guaranteeing a jury trial in some cases applied to processes where the Government (SEC there) imposed civil fraud-type penalties (there securities fraud). That is a high-level summary of a fairly complex Supreme Court opinion. Thus, for example, the Tax Court recently held that Jarkesy did not require a right to jury trial before the IRS determined a civil fraud penalty in a partnership equivalent of a notice of deficiency, permitting the partnership to contest in the Tax Court where no jury trial is permitted. Silver Moss Properties, LLC v. Commissioner, 165 T.C. ___, No. 3 (2025) (Reviewed Opinion) (T.C. Dkt. No. 10646-21, here, at Entry # 109, GS here), discussed in Tax Court Rejects SCE’s Hail Mary Jarkesy Pass (Federal Tax Procedure Blog 8/21/25), here.

In United States v. Sagoo (N.D. Tex No. 24-CV-01159-0 Memo Opinion & Order dtd 9/23/25), CL here and GS here [to come], the Court dismissed the Government’s FBAR willful penalty collection suit because the Government assessed the FBAR penalty without affording the penalized party (Sagoo) a pre-assessment jury trial on liability. The opinion is relatively short (8 pages) and rather cryptic in its legal analysis (pp. 4-7). So, I will leave it to readers of this blog to read and consider the legal analysis for whatever it is worth.

JAT Comments:

1. I say that the legal analysis is “rather cryptic.” Of course, as the Sagoo Court develops its legal analysis, the law is straightforward and easily applied to the simple relevant facts. If that were true, then calling the legal analysis rather cryptic is not suggesting a criticism. I question, though, where the legal analysis is as straightforward as the Sagoo presents it. For example, in Silver Moss Properties, LLC, discussing the same issue for the civil fraud penalty where the facts are also cryptic (one page), the Court’s legal discussion (pp. 7-16) covers 9 pages. This suggests that the legal analysis may not be as straightforward as the Sagoo Court presents it, even though Silver Moss Properties, LLC involved the civil fraud rather than the FBAR willful penalty involved in Sagoo.

2. Judge Reed O’Connor of the Northern District of Texas decided Sagoo. See Judge O’Connor’s Wikipedia page here. Having watched Judge O’Connor from afar for many years and as summarized in his Wikipedia page, I infer that his policy/political tilt is to be suspicious of power in administrative agencies. Imposing the FBAR penalty is a power in the administrative agency, here FinCEN acting through the IRS. So, Sagoo drew a good judge for the case.

3. I expect the Government to appeal Sagoo to the Fifth Circuit Court of Appeals. And, I expect the taxpayer in Silver Moss Properties, LLC to appeal to the Fifth Circuit as well because, as stated in the opinion (Slip Op. 3) its “principal place of business * * * was in Mississippi when petitioner filed its Petition with this Court. See § 7482(b)(1)(E).” There are issues yet to be resolved in Silver Moss Properties, LLC , but the partnership has filed a Motion for Certification of an Interlocutory Order to Permit Immediate Appeal (Objection) (# 111) and the Government responded on 9/18/25 (# 115). The Court has not yet ruled on the Motion. The Motion, however, might be mooted from a practical perspective if the Tax Court may believe that the Sagoo expected appeal will resolve the issue.

4. I too have a cryptic discussion of Jarkesy in my Federal Tax Procedure Book where I identify Jarkesy’s potential impact on tax procedure issues as follows (Practitioner Ed. 380-381):

           Finally, in SEC v. Jarkesy, 603 U.S. 109 (2024), the Court held that a person against whom the SEC brought fraud penalties in an administrative proceeding was entitled to have the fraud determination made by a jury in an Article III court rather than in an administrative proceeding. Could Jarkesy’s reasoning be extended to the civil fraud penalty (§ 6663), the § 6700 penalty for promoting abusive tax shelters, or even other civil penalties (such as the accuracy related penalty (§ 6662) )? That has not been definitively determined and the sparse writing on the subject is inconclusive.n1636

   n1636 Bryan Camp, The Impact of Jarkesy on Civil Tax Fraud Penalties, 27 Fla. Tax Rev. --- (2024) (SSRN 4947902 9/6/24) (discussing the competing arguments as to the effect of Jarkesy, concluding in effect that Jarkesy may or may not require the IRS to assert the civil fraud penalty after offering the ability to obtain a jury trial); Steve R. Johnson, Jarkesy, the Seventh Amendment, and Tax Penalties, 79 U. Miami L. Rev. 461, 504 (2025) (concluding that Jarkesy “should not be extended to the determination and assessment of civil tax penalties”); Victor Suthammanont, Megan L. Brackney & Macdonald Norman, Do Promoter Penalties Trigger the Right to a Jury Trial After Jarkesy? (Procedurally Taxing 8/1/25). The civil fraud determination also affects the unlimited statute of limitations under § 6501(c)(1). Would that mean that the unlimited statute of limitations must be determined by a jury?