The Tax Times: Tax Court Rules Civil Fraud Penalties Continue Within Its Jurisdiction Even After Supreme Court’s Jarkesy Decision

Thursday, October 16, 2025

The U.S. Tax Court recently declined to dismiss civil fraud penalties assessed against a partnership accused of vastly overvaluing a conservation easement deduction, ruling that the penalties can be adjudicated without a jury trial. The case, Silver Moss Properties, LLC v. Commissioner, 165 T.C. No. 3 (2025), reaffirmed that the Internal Revenue Service has authority to pursue penalties under IRC §6663(a) within the Tax Court system despite arguments based on the U.S. Supreme Court’s SEC v. Jarkesy, 144 S. Ct. 2117 (2024).

Court’s Reasoning

The partnership, Silver Moss Properties, LLC, argued that Jarkesy established that agencies cannot adjudicate fraud penalties without offering a right to a jury trial, as such penalties resemble common law fraud claims. The Tax Court disagreed, emphasizing two key legal principles:

· Sovereign immunity: The United States cannot be sued without its consent, and Congress’s limited waiver of immunity allowing TEFRA partnership-level litigation does not include jury trials. As the court noted, neither the Tax Court nor the Court of Federal Claims has statutory authority to empanel juries.

· Public rights doctrine: The court found that §6663(a) civil fraud penalties fall within the public rights exception because they address fraud against the federal government, not private individuals. In contrast to Jarkesy, where the SEC sought civil penalties akin to private fraud, tax fraud penalties are tools of revenue enforcement, properly handled within administrative and Article I courts.

Implications

This decision confirms that civil fraud penalties for conservation easement overvaluation can proceed entirely within the Tax Court, even after Jarkesy. It suggests that the Supreme Court’s limits on administrative enforcement in securities law do not extend to IRS-imposed civil tax penalties. The ruling preserves the longstanding understanding that no jury trial right exists in Tax Court proceedings, a principle grounded both in sovereign immunity and congressional intent.

Have an IRS Tax Problem?