Texas Federal Court Says No FBAR Penalty Without A Jury Trial!

A Texas federal judge has ruled that the IRS cannot assess more than $1 million in FBAR penalties against Sharnjeet Sagoo without first providing her an opportunity for a jury trial, marking a pivotal constitutional moment in tax enforcement lawsuits.

What Happened in U.S. v. Sagoo

Sharnjeet Sagoo, a U.S. citizen, allegedly failed to report foreign financial accounts in Kenya, India, and England from 2011 to 2013, with balances ranging between $1.4 million and $1.7 million. The IRS administratively assessed willful FBAR penalties totaling over $1,020,922.50 after an examination. After Sagoo did not pay, the government sued to convert these penalties into a federal court judgment. Sagoo moved to dismiss, arguing her right to a jury trial was violated when penalties were assessed administratively, without jury involvement.

The Legal Issue

The government maintained that Sagoo could still have a jury trial in district court, but the judge disagreed. 

Citing The Supreme Court’s Decision In SEC V. Jarkesy, 
Which Established That Government Agencies Imposing Civil Penalties Must Offer Jury Trials, The Court Found That IRS FBAR Assessments Made The IRS Both Prosecutor And Judge, Violating Sagoo’s Seventh Amendment Rights. 

The judge held that the constitutional guarantee of a jury trial is not satisfied after the agency has already determined facts, interpreted the law, and imposed penalties.

Why It Matters

The Sagoo decision marks a significant development for taxpayers facing willful FBAR penalties. While the government is likely to appeal, this ruling creates uncertainty for the IRS and sets a precedent for future FBAR enforcement, suggesting that district courts cannot rubber-stamp massive penalties without first offering taxpayers a jury trial.

Tax professionals should track this litigation closely, as its implications may ripple through both current and future IRS enforcement actions. 

For taxpayers considering streamlined or voluntary disclosure programs, the Sagoo case underscores the need to robustly document non-willful status and consult expert counsel given the IRS’s shifting, more aggressive posture. Stay tuned as this landmark ruling may reshape how FBAR penalties are imposed and challenged for years to come.

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