Under the Seventh Amendment of the U.S. Constitution, individuals generally have the right to jury trial in federal disputes. In 2024, the U.S. Supreme Court held in SEC v. Jarkesy that this constitutional right to a jury trial prohibited a government agency (i.e., the SEC) from imposing civil fraud penalties “in-house”. In other words, if the SEC intends to impose civil fraud penalties, it must offer a forum in which a jury trial is available.
After the Jarkesy decision, many tax professionals questioned whether Jarkesy would apply to the IRS. In a decision issued on August 21, 2025, the Tax Court held that Jarkesy did not require the court to conduct a trial jury with respect to an IRS proposed civil fraud penalty. However, a more recent decision from the Northern District of Texas has held that Jarkesy does apply concerning the IRS’ attempts to reduce to judgment willful FBAR penalties. Specifically, in U.S. v. Sagoo, No. 4:24-cv-01159 (N.D. Tex.), the court concluded that the Government’s attempts to reduce to judgment the FBAR penalty assessments violated the Seventh Amendment because the IRS “acted as a prosecutor, jury, and judge.” Although Sagoo will likely be appealed, taxpayers with willful FBAR penalties should watch the decision carefully to determine whether the same arguments may be raised in their cases.
Facts In Sagoo
The following facts are derived from the pleadings. Sagoo held interests in foreign financial accounts located in Kenya, India, and England. From 2011 through 2013, the account balances ranged from $1.4 million to $1.7 million. Because Sagoo was a U.S. person, she was required to file FBARs for 2011 through 2013.
Sagoo allegedly failed to do so. Thereafter, the IRS initiated a civil FBAR examination and ultimately assessed willful FBAR penalties of $1,020,922.50. Sagoo did not pay the FBAR penalties, and the Government initiated a lawsuit to collect them (referred to as reducing the FBAR penalties to judgment). In turn, Sagoo filed a motion to dismiss, contending that the IRS’ administrative assessments violated the Seventh Amendment.
The Government responded to the motion to dismiss and argued that, although the Seventh Amendment applied here, the constitutional right to a jury trial had not been violated because Sagoo could request a jury trial as part of the district court proceedings. Conversely, Sagoo argued that the IRS had ultimately made the determination to assess civil penalties without a required jury and therefore any “after-the-fact jury trial” was insufficient.
The Court’s Decision
The court agreed with Sagoo. Notably, the court noted that the Government was unable to cite to any authority in support of its position that “the constitutional guarantee of a jury trial is honored by a trial occurring after an agency had already found the facts, interpreted the law, adjudged guilt, and levied punishment.” Worse yet for the Government, the court also noted that the Fifth Circuit had already concluded in a post-Jarkesy case that jury trials after administrative assessments violated the Seventh Amendment right to a jury trial.
Conclusion
The Government will almost certainly appeal the Sagoo decision, particularly in light of the significant repercussions the decision will have on the Government’s ability to collect on FBAR penalty cases. Regardless, taxpayers with FBAR penalty disputes should carefully monitor the decision and assert Sagoo at both the administrative and federal district court levels, where necessary. At a minimum, the Sagoo decision, as it stands now, provides significant hazards of litigation to the Government. Stay tuned.