District Court Holds the FBAR Willful Penalty Requires Opportunity for Pre-Assessment Jury Trial (9/24/25; 10/1/25)

I have updated this blog in paragaph 5 below with an analogous case, HDH Group, involving the § 6700 penalty that has similar features to the FBAR willful penalty involved in the main case discussed, Sagoo. I have also updated this blog in paragraph 6 below to provide a link to a good discussion of these cases.

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, 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.

Tax Court Holds that Partners Unwilling to Settle on Terms Offered Partners Willing to Settle TEFRA Litigation Cannot Intervene if Untimely and No Acceptable Reason for Untimely Intervention (9/19/25)

In Blomquist Holdings, LLC v. Commissioner, 165 T.C. ___, No. 6 (9/1725), TC here at # 364 [Full TC cite and link to come when available], GS here, and TN here, the Tax Matters Partner and some (but not all) wished to participate in one of the IRS settlement initiatives for docketed syndication easement (“SCE”) cases. The particular settlement initiative required all LLC partners to agree to the settlement, meaning that the IRS could assess the settlement tax, penalty, and resulting interest consequences without much further ado. (LLC owners are not technically partners but a treated as partners for most substantive tax purposes and under the TEFRA audit procedures.) For those who are not familiar with the IRS settlement initiatives for SCE cases, an excellent introduction may be found at Hale E. Sheppard, Settling Syndicated Conservation Easement Cases With the IRS, 186 Tax Notes Federal 851 (2/3/26), here. Mr. Sheppard is an excellent tax litigator and is counsel in a number of the SCE cases in the Tax Court, but was not counsel in Blomquist (where the indicated counsel for the petitioner are from the international firm Dentons, here, which has a substantial US presence; those counsel are identified in the Blomquist opinion and may be further identified by searching on the Dentons’ site here).

This opinion in Blomquist rejects an attempt by some but not all partners to avoid the settlement agreement under the procedures in the statute and Tax Court rules for them to do so. In most litigation contexts, this attempt is called a motion to intervene, but the statute and Tax Court rules deal with the partnership version for an unwilling partner specifically. (I use the term unwilling partners; the opinions in the cases use other terms such as nonparticipating partners; the statutory provision is § 6226(c)(2); the Tax Court Rule is 248(b)(4).) The Tax Court (Judge Paris) does an excellent job of going through the rules to show why a timely request to participate in the proceedings is generally required and a late request will be permitted only in circumstances where the tardy request is justifiable. Blomquist holds that the partners trying to avoid the settlement (the unwilling partners) had not shown that the late request was justifiable. (Note that the Blomquist litigation (but not the T.C. opinion) is discussed in Hale Sheppard’s article linked above at pp. 855-856 and p. 857).

Based on Blomquist and other SCE cases where, post-Blomquist, Orders have been entered, I infer the following:

1. Based on recent litigated outcomes, the settlement offer is very good. Which is, of course, why the partners willing to accept the offer appear to have made a good decision, far better than they can hope to achieve in full trial of the matter (which would also require further wasted litigation costs and wasted time from the participants (even with the private attorneys being more than happy to waste time at their exorbitant billing rates), including judges, staff and witnesses). That, however, is just my inference from the cases I have read. In any event, it is clear that there were partners wanting to settle who were motivated, I infer, by the tax outcome (tax and penalties, with interest consequences as well) which is far better than had they litigated.

Do Mixed Questions of Fact and Law Have Component Facts and Law for § 7491(a) Purposes? (9/11/25)

I address today what may seem to be a fairly mundane issue, but in some contexts might be important. Readers may already be familiar with § 7491(a), here, titled “Burden shifts where taxpayer produces credible evidence.” The “burden” referred to is the burden of proof and specifically the burden of persuasion. The burden of persuasion is not technically relevant until the end of trial when it determines which party loses in the event the trier of fact is in factual equipoise as to some key fact. From a practical perspective, it is important to keep in mind the conventional trial wisdom that triers of fact are rarely in equipoise, so that ultimately the assignment of the burden of persuasion is meaningless in most cases. Setting that aside and accepting the possibility that the burden of persuasion may be outcome-determinative in some cases, parties will often want to know before the beginning of trial which party has the burden of persuasion so that it can prove its case accordingly.

That is what happened in FBA St. Clair Property C, LLC v. Commissioner (T.C. Case 14406-23, here, at docket # 176 9/11/25), where the petitioner in a syndicated conservation easement case filed a motion in limine for the Court to hold that the conditions in § 7491(a) assigned the burden of persuasion to the IRS. The Court denied the motion, reasoning (Slip Op. 3-4):

          Section 7491(a) states that if a taxpayer produces credible evidence with respect to one or more factual issues relevant to the taxpayer’s tax liability, the burden of proof may shift to the Commissioner as to that issue or issues, as long as the taxpayer complies with certain additional requirements. Section 7491(a) only applies if the issue is factual and not “a mixed question of fact and law” which is “primarily a legal question.” Williams v. Commissioner, 120 F.App’x 289, 293 (10th Cir. 2005) (denying that § 7491(a) applies to the issue of whether a payment was a gift for purposes of § 102(a) or instead a bonus), aff’g T.C. Memo. 2003-97. Here, the issue is whether the transaction was a contribution or gift for purposes of Section 170(c), and we hold that this issue is a mixed question of fact and law, and so Section 7491(a) does not shift the burden to the Commissioner.