District Court Holds the FBAR Willful Penalty Requires Opportunity for Pre-Assessment Jury Trial (9/24/25; 6/7/26)

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. Finally, I updated with paragraph 7 regarding a Fifth Circuit stay of briefing pending FCC v. AT&T, Inc., 608 U. S. ___ (2026) and lifting of the stay.

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, 2025 U.S. Dist. LEXIS 184336, 2025 WL 2689912 (N.D. Tex 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.

Adjudications of Agency Actions and the Right to Jury Trial (5/21/22; 6/26/24)

Added 6/26/24 3pm: The Supreme Court affirmed and remanded the case to the Fifth Circuit. SEC v. Jarkesy,  603 U. S. ____ (2024), here. The Court held (per the syllabus): “When the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.” The jury trial must occur in the federal district court.

I don't know if readers have paid any attention to the Fifth Circuit's decision in Jarkesy v. SEC. 34 F. 4th 446 (5th Cir. 5/18/22), CA5 here and GS here. Jarkesy is not a tax case but, I think, might have potential implications in Tax Court cases.  Jarkesy seems to be driven by fear of the administrative state that can be mitigated by constitutional generalities in service of ideology. If that were all that was involved and did not at least potentially implicate tax procedure issues, I would not discuss it here. But I do have concerns about tax procedure. I apologize to readers if my concerns are not fully fleshed out here, but I would appreciate any readers' contributions to my education.

Judge Jennifer Walker Elrod for the majority offers a summary in the opening (pp. 1-2):

            Congress has given the Securities and Exchange Commission substantial power to enforce the nation's securities laws. It often acts as both prosecutor and judge, and its decisions have broad consequences for personal liberty and property. But the Constitution constrains the SEC's powers by protecting individual rights and the prerogatives of the other branches of government. This case is about the nature and extent of those constraints in securities fraud cases in which the SEC seeks penalties.

            The SEC brought an enforcement action within the agency against Petitioners for securities fraud. An SEC administrative law judge adjudged Petitioners liable and ordered various remedies, and the SEC affirmed on appeal over several constitutional arguments that Petitioners raised. Petitioners raise those same arguments before this court. We hold that: (1) the SEC's in-house adjudication of Petitioners' case violated their Seventh Amendment right to a jury trial; (2) Congress unconstitutionally delegated legislative power to the SEC by failing to provide an intelligible principle by which the SEC would exercise the delegated power, in violation of Article I's vesting of "all" legislative power in Congress; and (3) statutory removal restrictions on SEC ALJs violate the Take Care Clause of Article II. Because the agency proceedings below were unconstitutional, we GRANT the petition for review, VACATE the decision of the SEC, and REMAND for further proceedings consistent with this opinion.

The best commentary I have seen on Jarkesy is Joe Patrice, Fifth Circuit Blows Up SEC Because The Word 'Ponzi' Is Nowhere In The Constitution (Above the Law 5/19/22), here. This commentary starts as follows:

Every 1L lecture has that kid who raises their hand and poses some wacky hypo and asks if this brain nugget that they've come up with for the first time actually upends 250 years of collected jurisprudence on the subject that they didn't actually read about for today's class.

That kid is now on the Fifth Circuit.

Fresh off telling private companies employees are enjoined from enforcing any rule if an employee even asserts that it's religious, and attempting to insert itself at the head of the Department of Defense, the Fifth Circuit Mental Gymnastics Squad offered up another perfect 10 with Jarkesy v. SEC.

I found that a particularly apt introduction to the Jarkesy majority opinion.   I will let Judge Elrod's majority summary quoted above set up this discussion. Focus on (1) of the summary. Tax administration has no analog to SEC in-house adjudication since tax-related adjudication is in the Tax Court (a legislative court), the district courts (Article III courts), and the Court of Federal Claims (Article I courts). However, Judge Elrod's stated concern was the lack of a jury trial for types of issues that historically could be tried to a jury and thus potentially within the ambit of the Seventh Amendment. Judge Elrod mentioned particularly penalty issues (fraud) that historically was within the ambit of jury trials when the Seventh Amendment was adopted. If jury trial is the real concern, whether the adjudicative proceeding is tried in an executive function (such as the SEC) or in a legislative court (such as the Tax Court) should not make a difference, for it is the lack of jury trial that is the issue. My question is whether that is or could be an issue with respect to the Tax Court's various jurisdictions.

Of course, in most tax contexts, a taxpayer can get a jury trial on tax issues triable to a jury by proceeding by refund (meeting jurisdictional requirements) or awaiting a collection suit. So, perhaps the Government could argue that, by using a Tax Court remedy (either deficiency or CDP or some other), the taxpayer has waived his "right" to jury trial, so that the issue does not arise for Tax Court proceedings.