In 2024, the Supreme Court issued its decision in SEC v. Jarkesy, concluding that the SEC’s civil enforcement mechanism to collect a fraud penalty through administrative means violated the Seventh Amendment’s right to a jury trial. Taxpayers have taken note of the Jarkesy decision in 2025. In the last few months, taxpayers have challenged IRS penalties on similar grounds, contending that the penalty scheme at issue in each case was unconstitutional. Taxpayers should expect more Jarkesy challenges in the future. And taxpayers should ensure they are properly raising the constitutional challenge where necessary.
The Seventh Amendment and Jarkesy
The Seventh Amendment of the U.S. Constitution provides that in “[s]uits at common law . . . the right of trial by jury shall be preserved.” Although the Seventh Amendment speaks only of “suits at common law,” the Supreme Court has recognized the constitutional right to a jury trial may apply to purely statutory causes of action. Moreover, the Supreme Court has noted that the Seventh Amendment may apply where the government seeks penalties.
In Jarkesy, the Supreme Court held the constitutional right to a jury trial applied in the context of Securities and Exchange Commission (SEC) proceedings. By statute, the SEC may bring enforcement actions against private parties either administratively or through federal court litigation. If the SEC chooses the former route, the agency makes administrative findings, which, albeit subject to judicial review, are “conclusive” when supported by the administrative evidence. Conversely, if the SEC seeks the latter route directly in federal court, a jury serves as the fact finder without deference to the agency’s findings.
The Supreme Court concluded in Jarkesy that the SEC could not seek civil penalties administratively. Because the penalties were “designed to punish and deter . . . [and] not to compensate,” the Court reasoned that the penalties fell under the Seventh Amendment as common law fraud claims. The Supreme Court further held that no recognized exception applied to the constitutional bar (e.g., the “public rights” exception).
Silver Moss Props. LLC v. Comm’r
On August 21, 2025, the U.S. Tax Court issued its decision in Silver Moss Props., LLC v. Comm’r, 165 T.C. No. 3. In that case, the IRS proposed a civil fraud penalty against a taxpayer who allegedly participated in a conservation easement. After the Jarkesy decision, the taxpayer moved for summary judgment, contending that the civil fraud penalty could not be imposed absent a jury trial (by statute, the U.S. Tax Court does not have jury trials).
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The Tax Court held in favor of the government in that a jury trial was not required. First, the court found that it had been well settled that taxpayers were not entitled to a jury trial in Tax Court. Second, the court reasoned that the public rights exception applied because the penalty helped the government with the collection of revenue.
U.S. v. Sagoo
On September 19, 2025, the Northern District of Texas issued its decision in U.S. v. Sagoo, No. 4:24-cv-01159-O (N.D. Tex.). In Sagoo, the taxpayer argued that the FBAR penalty procedures used by the IRS violated the Seventh Amendment. A brief overview of the FBAR penalty procedures is necessary to better understand the argument.
Title 31 of the U.S. Code requires U.S. persons to file Foreign Bank and Financial Accounts Reports (FBARs) if they have specified interests of more than $10,000 in foreign accounts at any time during a calendar year. If a person fails to file a timely and accurate FBAR, the government may seek “willful” FBAR penalties equal to the greater of $100,000 (adjusted for inflation) or 50% of the foreign account balances at the time of the violation. After assessing the willful FBAR penalty, the government may seek to collect the assessment through initiating a lawsuit in federal court. Taxpayers may request jury trials in FBAR lawsuits.
In Sagoo, the taxpayer argued that her constitutional right to a jury trial was violated notwithstanding the post-assessment jury trial rights in federal court. In response, the government made notable concessions. The government agreed that the Seventh Amendment applied to the FBAR penalty provisions and conceded that the public rights exception did not apply. Notwithstanding, the government contended that the FBAR penalty provisions were constitutional under the Seventh Amendment given the right to a jury trial post-assessment.
The court disagreed, finding that the IRS during the assessment phase “acted as a prosecutor, jury, and judge.” The post-assessment jury rights were not sufficient to protect the taxpayer’s Seventh Amendment rights.
HDH Group Inc. v. U.S.
On September 23, 2025, the Western District of Pennsylvania issued its decision in HDH Group Inc. v. U.S., No. 2:24-cv-988 (W.D. Pa.). The HDH Group decision holds that the section 6700 penalty regime does not violate the Seventh Amendment right to a jury trial.
Under section 6700, the government may seek civil penalties against promoters of abusive tax structures. To succeed, the government must show, among other things, that the promoter made false or fraudulent statements concerning the scheme’s tax benefits. Section 6703 specifically requires the government (and not the taxpayer) to bear the burden of proof on the applicability of penalties.
Relying in part on the Jarkesy decision, the court found that the Seventh Amendment applied to section 6700 penalties because the penalties were akin to common law fraud claims. However, the court disagreed that section 6700 on its face violated the taxpayer’s constitutional right to a jury trial. In finding in favor of the government, the court found significant the statute’s requirement for de novo judicial review of the IRS’ penalty determinations and the placement of the burden of proof on the government to sustain the penalties. Given these findings, the court passed on whether the public rights exception also applied.
Summary
Taxpayers subject to civil penalties should be mindful of the Jarkesy decision. Thus far, taxpayers have had mixed results in raising the constitutional right to a jury trial in various contexts. As the federal courts wrestle with the scope of Jarkesy, taxpayers can expect additional federal court decisions on the matter. In the meantime, taxpayers should preserve and raise the issue where necessary.
