A Tale of Two Penalties: Impact of SEC v. Jarkesy on IRS Penalty Litigation
Minnalou Boadu-Bennett
Securities and Exchange Commission v. Jarkesy expanded the scope of monetary penalties that may require Article III adjudication.[1] There, the Supreme Court held that the civil fraud penalties at issue were legal remedies of the kind tried at common law and thus subject to the Seventh Amendment’s right to jury trial.[2] It further held that because of these penalties’ similarity to common law fraud suits, the public rights exception to Article III adjudication was not applicable.[3]
Of course, the SEC is not the only agency that assesses and adjudicates penalties in-house.[4] Quickly, litigants facing similar civil penalties from other agencies began making constitutional and jurisdictional arguments that their penalties were improperly imposed.[5] With mixed results, Jarkesy’s boundary-setting for the public rights doctrine has begun to cast a shadow on adjudication processes for civil penalties assessed by other agencies, including the Internal Revenue Service. For example, taxpayers have challenged penalties assessed for civil fraud in tax matters and for Bank Secrecy Act violations.[6] These exactions, chargeable under I.R.C. § 6663(a) and 31 U.S.C. § 5321, respectively, are facially labeled penalties, which makes the baseline analogy to Jarkesy straightforward, although the result is less so.[7] The Court’s public rights jurisprudence is, in its own words, not “definitively explained,” frustrating confidence in applying it.[8] Nevertheless, Jarkesy highlights the tension between historical ideals of fair adjudication and present concerns for administrative practicality in complex regulatory systems. As an initial step in a larger project examining putative taxes and punitive exactions, this blog reviews the landscape of Jarkesy’s migration into IRS-assessed penalties.
SEC v. Jarkesy
The Seventh Amendment guarantees that “[i]n Suits at common law . . . the right of trial by jury shall be preserved,” where “suits at common law” refers to those of the kind historically heard by courts of law, rather than equity or admiralty.[9] Tull v. United States sets forth the basic analysis to identify these actions.[10] First, compare the action to those brought in 18th-century English courts before the merger of law and equity and determine whether the remedy sounds in law or equity.[11] If the action is legal in nature, the Seventh Amendment mandates jury trial, unless the action concerns those public rights that may be initially adjudicated by a non-Article III tribunal.[12] The public rights exception applies to actions of public substance, typically involving matters over which the political branches hold plenary power.[13] If, however, the substance of the action is akin to “suits at common law,” the right is presumptively private and the exception does not apply.[14] The Court considered Granfinanciera, S.A. v. Nordberg dispositive for these inquiries in Jarkesy.[15]
In Granfinanciera, the Court applied the Tull test to fraudulent conveyance actions arising from bankruptcy proceedings required jury trial.[16] It first held fraudulent conveyance actions implicated the Seventh Amendment because such actions were well known at common law and sought legal, not solely equitable, remedies.[17] Further, because fraudulent conveyance actions were akin to suits at common law, were not “‘closely intertwined’ with the bankruptcy process,” and Congress had expressly provided these actions jury trial in other circumstances, they were not due the public rights exception.[18]
The civil fraud penalties in Jarkesy implicated the Seventh Amendment because the underlying fraud action was closely analogous to common law fraud claims, and the remedy sought was legal in nature.[19] By drawing on common law understandings of fraud, Congress “created an enduring link” between the common law and its enacted statutory securities fraud penalties.[20] Penalties, as a form of monetary relief, may be legal or equitable in nature.[21] When monetary relief is solely remedial, it sounds in equity.[22] Remedies with any punitive or deterrent function sound in law.[23] Because the SEC assessed these civil fraud penalties on the basis of culpability and did not use the collected funds to compensate victims, the court concluded they were legal, and therefore presumptively required Article III adjudication.[24]
The public rights exception did not apply to the penalties in Jarkesy because their substance concerned private rights. Like Granfinanciera, the fraud actions were akin to suits at common law and had a history of Article III adjudication prior to Congressional intervention.[25] The Court also distinguished Jarkesy from Atlas Roofing Co. v. Occupational Safety and Health Review Commission, where the public rights exception applied to penalties imposed on violations of the Occupational Safety and Health Act of 1970.[26] There, the statutory regime created new claims “unknown to the common law.”[27] While the fraud penalties in Jarkesy retained their link to common law fraud actions, OSHA imposed the penalties in Atlas Roofing for violations of the novel, specific safety regulations promulgated under the OSH Act.[28] The novel statutory nature of these safety regulations rendered their substance public, while the common law grounding and adjudicative history of securities fraud actions sustained the presumption that their substance was private.
In sum, Jarkesy gives litigants challenging agency penalties the proposition that because money damages are legal in nature, if the underlying action has a recognizable common law ancestor, then the right for jury trial of that action is preserved.
I.R.C. § 6663(a) Penalties
The IRS, like the SEC, can assess civil penalties under various anti-fraud tax provisions.[29] When assessed, these penalties are treated as additions to tax.[30] This treatment guides the subsequent collection and dispute procedures. Taxpayers facing civil tax fraud penalties may bring prepayment challenges in Tax Court or sue for refund in the District Courts or in the Court of Federal Claims.[31] Tax Court decisions may be appealed to the geographical Circuit Court with jurisdiction.[32] The Government may sue in District Court to collect or recover exactions imposed by the Internal Revenue Code.[33] Of the available civil dispute procedures, only taxpayer-initiated refund suits and certain Government recovery suits, both in District Court, provide taxpayers access to jury trial. However, this access may be restricted by statute, as noted by petitioner in Silver Moss Properties, LLC. v. Commissioner.[34]
In Silver Moss, the Tax Court upheld its jurisdiction in a case of civil fraud penalties assessed against a partnership subject to Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) audit and litigation procedures.[35] Citing Jarkesy, the tax matters partner for the partnership argued that because the Tax Court is not authorized to empanel a jury, its adjudication of civil fraud penalties, including § 6663(a) tax fraud penalties, would infringe the taxpayer’s guaranteed right to jury trial.[36] Because the Court of Federal Claims is likewise unauthorized to empanel a jury and the TEFRA litigation procedures foreclose jury trial in District Court, the taxpayer did not have the opportunity for jury trial, even in a refund suit.[37]
In an amicus brief, the Center for Taxpayer Rights presented legal and historical evidence that Section 6663(a) penalties were suits at common law not eligible for the public rights exception.[38] With respect to the threshold Seventh Amendment implication, the amicus argued that because these penalties have substantial deterrent, and not solely remedial goals, they are legal in nature.[39] The amicus also argued modern tax penalties are analogous to traditional suits at common law because national tax penalties were collected in suits at common law at the relevant time for the historical inquiry.[40]
On the public rights exception, the amicus argued this history of common law suits for recovery of tax penalties pre-founding and through the civil war undermines the existence of an “unbroken tradition” warranting the public rights exception.[41] The amicus cites enforcement by suit for various tax penalties component to the Whiskey Tax of 1791, Carriage Tax of 1794, Stamp Act of 1791, and various internal revenue statutes financing the War of 1812.[42] Altogether, because modern civil tax penalties can be analogized to tax penalties adjudicated judicially at common law, they implicate the Seventh Amendment without any public rights exception.
The Tax Court unanimously rejected this argument. As a threshold matter, the court held that the government had not waived its right of sovereign immunity.[43] Because the government must consent to suit in order to be sued, the terms of its consent resolve questions of jurisdiction.[44] Here, the limited waiver of sovereign immunity for tax refunds in TEFRA partnership level proceedings does not provide consent for jury trial in any of the three courts where it consents dispute of the assessment.[45]
Further, rejecting the petitioner’s public rights challenge, the Tax Court held that this lack of access to jury trial did not violate the Seventh Amendment.[46] The court notes that all three writings in Jarkesy recognized revenue collection as the “quintessential public right.”[47] In response to the historical evidence of enforcement by suit, the Court distinguished those as qui tam actions authorized for certain excise taxes, contrasted with the administrative assessment of penalties at the advent of the federal income tax.[48] From there it draws an unbroken line of non-judicial revenue collection penalty adjudication in Oceanic Steam Navigation Co. v. Stranahan, Helvering v. Mitchell, and Sadler v. Commissioner.[49] It concludes by differentiating the fraud perpetrated against private parties in Jarkesy from the specific type of fraud targeted by section 6663(a), fraud upon the federal government.[50] This distinction reinforces the lack of jurisdiction for suits against the sovereign.
Subsequent attempts to apply Jarkesy to civil fraud penalties at the Tax Court have received the same treatment.[51] But, enter Hirsch v. United States Tax Court, pending certiorari from the Eleventh Circuit.[52] Petitioners in Hirsch moved for jury trial in Tax Court proceedings disputing their section 6663(a) penalties.[53] The Tax Court denied those motions and petitioners’ motions for reconsideration.[54] Petitioners next sought a writ of mandamus from the Eleventh Circuit to compel the Tax Court to empanel jury. Also denied.[55] Now, Petitioners’ writ of certiorari raises the question of section 6663(a) penalty jury trial to the Supreme Court.
31 U.S.C. § 5321(a)(5)(c) Penalties
Besides tax penalties, the IRS also assesses fraud penalties under the Bank Secrecy Act for “FBAR” violations. The Bank Secrecy Act gives Treasury authority to collect information on the foreign accounts of U.S. persons.[56] Among other information reporting schemes, individual taxpayers must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”) annually to report assets held in certain foreign financial accounts.[57] Taxpayers who fail to comply with FBAR recordkeeping and reporting requirements are liable for civil penalties under 31 U.S.C. § 5321. FinCEN delegated FBAR enforcement authority to the IRS in 2003.[58] This delegation covers both the investigation of FBAR violations and assessment and collection of civil penalties.[59] These penalties can be severe and are enhanced for willfulness.[60]
FBAR penalties have faced unsuccessful constitutional challenges on Eighth Amendment grounds, i.e. that they are excessive fines.[61] More recently, however, one taxpayer succeeded in challenging the imposition of FBAR penalties as a violation of her Seventh Amendment rights.[62]
In Sagoo, the Government had previously assessed penalties against Sagoo for FBAR violations.[63] After Sagoo failed to pay these penalties, the Government brought an action in District Court to convert its penalty assessment to a court-ordered judgement.[64] Sagoo moved to dismiss on multiple grounds, including violation of her Seventh Amendment rights.[65] The Court agreed with Sagoo’s Seventh Amendment challenge and granted her motion.
The Government had conceded Sagoo was guaranteed a jury trial in this case and did not dispute the Seventh Amendment implication of FBAR penalties, nor argue for the public rights exception.[66] The issue was whether the Seventh Amendment violation had already occurred.[67] Sagoo argued that violation occurred not in the instant case, which was to enforce collection by reduction to judgement of an already assessed penalty, but rather when the Government assessed the original penalty.[68] Holding that an “after-the fact jury trial” would not vindicate Sagoo’s Seventh Amendment right when penalties were already adjudicated by the Government and had borne “real world consequences,” the Court dismissed the action.[69]
Conclusion
Only time will tell how far (and how successfully) Jarkesy migrates into other administrative adjudication procedures. While sister Circuits have declined to follow Sagoo in FBAR cases, its reasoning is live in a Fifth Circuit Section 6663(a) penalty dispute.[70] And with Hirsch pending certiorari, the Supreme Court has a ripe opportunity to consider how close to common law fraud a civil fraud penalty must be to implicate the Seventh Amendment. If Section 6663(a) penalties are, in fact, close enough, does the presumption that revenue-related actions are inherently excepted as a public right hold when the underlying exaction turns on culpability instead of morally neutral(ish) revenue raising? That is, if the Court continues to narrow the public rights exception, does its historical approach to distinguishing taxes from penalties draw putative taxes with punitive effect into the Seventh Amendment’s mandate?[71] Practically speaking, the answer is likely no. But as normative matter, this controversy encourages asking: how should America balance its commitment jury trials as the ideal expression of fair adjudication of punishment against the need for the effective enforcement of the complex regulatory systems which are already highly burdened?
[1] 603 U.S. 109 (2024).
[2] Id. at 120.
[3] Id.
[4] See generally William Yeatman & Keelyn Gallagher, The Rise of Money Sanctions in Federal Agency Adjudication, 76 Admin. L. Rev. 857 (2024) (evaluating the history and growth of monetary penalties initially assessed by administrative agencies).
[5] See, e.g., Complaint for Declaratory and Injunctive Relief at 60, Energy Transfer LP v. Nat’l. Lab. Relations Bd., No. 3:24CV00198 (S.D. Tex. June 27, 2024); Second Amended Complaint for Declaratory Judgement and Injunctive Relief at 88, Devry University, Inc. v. U.S. Dep’t of Educ., No. 1:22-CV-05549 (N.D. Ill. Aug. 7, 2024); Amazon’s Complain and Application for Declaratory and Injunctive Relief at 59, No. 25CV04326 (D.D.C. Sept. 5, 2024).
[6] See, e.g., Silver Moss Props., LLC. v. Comm’r of Internal Revenue, No. 10646-21, 2025 WL 2416867, at *2 (T.C. Aug. 21, 2025); Petition for A Writ of Certiorari at 1, Hirsch v. U.S. Tax Court, No. 25-739 (Dec. 18, 2025); United States v. Sagoo, No. 4:24-CV-01159-O, 2025 WL 2689912, slip op. at *3 (N.D. Tex. Sept. 19, 2025).
[7] See, e.g., Bryan T. Camp, The Impact of Sec v. Jarkesy on Civil Tax Fraud Penalties, 27 Fla. Tax Rev. 478, 491 (2024).
[8] Jarkesy, 603 U.S. at 130 (quoting Oil States Energy Serv., LLC. v. Greene’s Energy Grp., LLC., 584 U.S. 325, 334); see also Id. (“This is an ‘area of frequently arcane distinctions and confusing precedents.’”)(quoting Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 583 (1985)).
[9] U.S. Const. amend VII; see Parsons v. Bedford, 28 U.S. 433, 446-47 (1830) (defining “suits at common law” in the Constitutional context).
[10] 481 U.S. 412, 417 (1987).
[11] Id.
[12] Id. at 417-18.
[13] See Stern v. Marshall, 564 U.S. 462, 493 (2011).
[14] Granfinanciera, 492 U.S. at 56.
[15] Jarkesy, 603 U.S. at 112.
[16] 492 U.S. 33, 36, 42 (1989).
[17] Id. at 42-43.
[18] Id. at 56, 63.
[19] Jarkesy, 603 U.S. at 111.
[20] Id. at 125-26.
[21] Id. at 123.
[22] Id. (citing Tull v. United States, 481 U.S. 412, 422 (1987)).
[23] Id.
[24] Id. at 125.
[25] Id. at 112.
[26] Id. at 136 (citing 430 U.S. 442, 444‒46 (1977)).
[27] Atlas Roofing, 430 U.S. at 461.
[28] Jarkesy, 603 U.S. at 136‒37.
[29] I.R.C. §§ 6662-6664.
[30] Id.
[31] Id. §§ 6213,7422. There is an alternative procedure available to dispute deficiency claims in amounts less than $50,000. Id. § 7463. Decisions on these disputes are non-appealable and non-precedential. Id. § 7463(b).
[32] Id. §7482.
[33] Id. § 7401‒7409.
[34] No. 10646-21, 2025 WL 2416867, at *2 (T.C. Aug. 21, 2025); see, e.g., 28 U.S.C. § 2402.
[35] Id. at *1; see TEFRA, Pub. L. No. 97-248, 96 Stat. 324 (repealed 2015).
[36] Silver Moss, 2025 WL 2416867 at *1.
[37] Id. at *2.
[38] Brief of the Center. for Taxpayer Rights as Amicus Curiae in Support of Petitioner’s Motion for Partial Summary Judgement, Silver Moss Props., LLC. v. Comm’r, No. 10646-21, 2025 WL 2416867 (T.C. Aug. 21, 2025).
[39] Id. §§ I.A.
[40] Id. § I.B. In Section I.C. of the brief, the amicus cited the Tull v. United States, 481 U.S. 412,418-419, characterization of civil penalties as analogous to actions in debt which were traditionally heard at law and required jury trial, as further justification for implication the Seventh Amendment.
[41] Brief of the Ctr. For Taxpayer Rights, supra note 37, § II.
[42] Id. § II.B.
[43] Silver Moss, 2025 WL 2416867 at *3.
[44] Id. (citing United States v. Sherwood, 312 U.S. 584, 586 (1941)).
[45] Id. at *4.
[46] Id.
[47] Id. at *5.
[48] Id. at *7.
[49] Id. at *8‒9.
[50] Id. at *10.
[51] See, e.g., Riddle Aggregates, LLC. v. Comm’r, 165 T.C. No. 12, 2025 WL 3626952 at *2‒3 (T.C. Dec 15, 2025); see also Chernomordikov v. Comm’r, T.C. Memo. 2025-129, 2025 WL 3626880 at *10 (Dec 15, 2025).
[52] Petition for Writ of Certiorari, Hirsch v. United States Tax Court, No. 25-739 (Dec. 18, 2025).
[53] Id. at (i).
[54] Id.
[55] Id.
[56] 31 U.S.C. §5311-5336.
[57] Fin.Crimes Enf’t Network, Purpose of the FBAR, https://www.fincen.gov/purpose-fbar (last visited Mar. 26, 2026).
[58] 31 C.F.R. §1010.810(g).
[59] Id.
[60] 31 U.S.C. § 5321(a)(5)(C).
[61] See Toth v. United States, 33 F. 4th (1st. Cir. 2022), cert. denied, 143 S. Ct. 552 (2023) (Mem).
[62] United States v. Sagoo, No. 4:24-CV-01159-O, 2025 WL 2689912 (N.D. Tex. Sept. 19, 2025) appeal docketed, United States v. Sagoo, No. 25-11271 (5th Cir. Nov. 18, 2025).
[63] Id. at *1.
[64] Id. at *2.
[65] Sagoo argued lodged statutory, APA and Eighth Amendment violations, which the Court did not consider. Id. at *3 (citing Defendant’s Motion to Dismiss 3, ECF No. 8, Sagoo, No. 4:24-CV-01159-O).
[66] Id. (citing Plaintiff’s Response 2, ECF No. 17, Sagoo, No. 4:24-CV-01159-O).
[67] Id.
[68] Id. (citing Defendant’s Motion to Dismiss 3, ECF No. 8, Sagoo, No. 4:24-CV-01159-O).
[69] As noted supra note 57, the Government has appealed Sagoo. On December 23, 2025, the Government’s request to stay further proceedings pending disposition of FCC v. AT&T, No.25-406, 2026 WL 73092 (Jan. 9, 2026) (Mem)., another case concerning agency penalties, was granted. Order Granting Appellant’s Opposed Motion, No. 25-11271.
[70] See United States v. Schwarzbaum, No. 18-CV-81147-BB, 2026 WL 741852 (S.D. Fla. Mar. 16, 2026). But see, e.g., Opening Brief of Plaintiff Appellant at 23, Norcave Properties, LLC v. IRS, No. 25-30542, 2025 WL 3654583 (5th Cir. Dec. 8, 2025).
[71] Distinguishing between tax and penalty held greater urgency during bygone eras of the Court’s Commerce Clause and taxing power jurisprudence, when the result of the inquiry could control the constitutionality of an entire regulatory scheme. See e.g., Bailey v. Drexel Furniture Co., 259 U.S. 20, 37-38 (1922) (striking down a tax on culpable firms as an unconstitutional penalty). Regulatory taxation being on firmer footing, the inquiry has been largely, but not entirely, irrelevant. See e.g., Nat’l Fed’n of Indep. Bus.v. Sebelius, 567 U.S. 519, 547 (2012) (upholding a penalty for failure to purchase statutorily adequate health insurance as a constitutional tax).