The government’s long-standing practice of administratively assessing civil FBAR penalties has come under increasing constitutional scrutiny following the Supreme Court’s decision in SEC v. Jarkesy, 603 U.S. 109 (2024). What began as a challenge to SEC administrative proceedings has now expanded into a broader debate over whether federal agencies may determine liability and impose punitive monetary penalties without first providing access to an Article III court and a jury. Recent developments, including the Northern District of Texas’s decision in United States v. Sagoo and the Supreme Court’s pending review of the Fifth Circuit’s decision in FCC v. AT&T, have elevated this issue from a theoretical argument to a potentially transformative challenge to the validity of FBAR penalty assessments. A Jacksonville, FL FBAR lawyer can help taxpayers understand how evolving legal developments may affect their reporting obligations, assess potential exposure to civil penalties, and develop strategies for responding to IRS and Treasury enforcement actions.
Jarkesy and the Foundation of the Argument
In Jarkesy, the Supreme Court held that when the SEC seeks civil penalties for securities fraud, the Seventh Amendment entitles the defendant to a jury trial. The Court emphasized that civil penalties are a classic legal remedy and that claims analogous to common-law fraud historically were tried before juries. As a result, the SEC could not constitutionally adjudicate such claims through its own administrative tribunal.
Although Jarkesy involved SEC enforcement, taxpayers quickly recognized its potential application to FBAR penalties. Like SEC penalties, FBAR penalties are punitive monetary sanctions imposed by an executive agency. Moreover, courts increasingly have recognized the punitive nature of willful FBAR penalties. Most notably, the Eleventh Circuit recently held in United States v. Schwarzbaum that willful FBAR penalties are subject to the Excessive Fines Clause because they are punitive rather than purely remedial.
If FBAR penalties are punitive fines, the argument follows that they may also be the type of legal remedy that triggers the Seventh Amendment jury-trial right recognized in Jarkesy.
The Breakthrough Decision: United States v. Sagoo
The first court to fully embrace this argument was the Northern District of Texas in United States v. Sagoo. There, the IRS had assessed more than $1 million in willful FBAR penalties. When the government later brought a collection action to reduce those assessments to judgment, the taxpayer argued that the assessments themselves were unconstitutional because they had been imposed without a jury trial.
The government conceded that the Seventh Amendment was implicated in FBAR cases but contended that any constitutional concern was satisfied because the taxpayer could obtain a jury trial during the later collection action.
The district court rejected that position. Relying heavily on Jarkesy and the Fifth Circuit’s contemporaneous decision involving FCC penalties, the court concluded that a jury trial occurring only after an agency has investigated the case, determined liability, and assessed penalties is not an adequate substitute for the constitutional right to a jury trial. According to the court, the government had already acted as “prosecutor, jury, and judge” before any neutral factfinder became involved. The court dismissed the government’s collection action with prejudice, holding that the FBAR assessment process violated the Seventh Amendment.
Although Sagoo is only a district court decision, it represents the most significant judicial challenge to the FBAR penalty regime to date.
The Fifth Circuit’s FCC Decision and Supreme Court Review
The constitutional theory accepted in Sagoo did not arise in a vacuum. It was heavily influenced by the Fifth Circuit’s decision in AT&T, Inc. v. FCC, now before the Supreme Court as FCC v. AT&T. In that case, the Fifth Circuit held that the FCC’s procedure for imposing substantial civil penalties violated the Seventh Amendment. The court reasoned that the possibility of a later jury trial in a Department of Justice collection action did not cure the constitutional defect because liability already had been adjudicated and penalties already had been imposed by the agency.
The Supreme Court granted review and heard argument in 2026. The central question is whether an agency may assess monetary penalties first and leave the defendant to seek a jury trial later during an enforcement action. The government argues that the later collection proceeding satisfies the Seventh Amendment because the actual obligation to pay arises only when the government successfully enforces the penalty in court. AT&T and Verizon counter that the Constitution does not permit a “penalty-now, jury-later” regime.
The Supreme Court’s resolution of FCC v. AT&T may ultimately determine the fate of the Seventh Amendment challenge to FBAR assessments. If the Court affirms the Fifth Circuit, Sagoo will gain substantial support. If the Court reverses, the constitutional foundation of Sagoo may be significantly weakened.
Barribeau and Other Cases Raising the Argument
Following Jarkesy and especially after Sagoo, taxpayers have increasingly asserted Seventh Amendment challenges in FBAR and other civil penalty cases. One of the most notable examples is Barribeau, where taxpayers advanced arguments that the administrative assessment of FBAR penalties violated the Seventh Amendment because the government had imposed punitive monetary sanctions without a jury determination.
To date, however, no appellate court has adopted the argument in the FBAR context. Instead, courts remain divided over how broadly Jarkesy should be applied. Some courts addressing other IRS penalty regimes have distinguished Jarkesy and upheld administrative assessments on the theory that taxpayers retain access to de novo judicial review and jury trials in refund litigation. As a result, Barribeau and similar cases presently serve more as vehicles for preserving and developing the issue than as precedents establishing constitutional invalidity.
The Role of Schwarzbaum
Although Schwarzbaum did not directly involve the Seventh Amendment, it has become an important component of the argument. The Eleventh Circuit’s conclusion that willful FBAR penalties are punitive fines for purposes of the Excessive Fines Clause undermines the government’s frequent characterization of FBAR penalties as merely remedial regulatory assessments.
Taxpayers now regularly cite Schwarzbaum together with Jarkesy to argue that if FBAR penalties are punitive enough to qualify as constitutional “fines,” they likewise resemble the traditional legal remedies that historically required jury adjudication. The Schwarzbaum litigation itself remains significant because it established a circuit split regarding the constitutional treatment of FBAR penalties and has reinforced the broader trend toward viewing those penalties as punitive sanctions rather than purely administrative remedies.
Current Outlook
The Seventh Amendment challenge to FBAR assessments remains unsettled. Sagoo represents the strongest judicial endorsement of the theory, but it stands largely alone. Other courts have been more receptive to the government’s position that post-assessment judicial review adequately protects constitutional rights.
The most important development now is the Supreme Court’s pending decision in FCC v. AT&T. Because that case squarely presents the question whether an agency may impose monetary penalties before affording a jury trial, its outcome is likely to shape future FBAR litigation. If the Court agrees with the Fifth Circuit that an “after-the-fact” jury trial is constitutionally insufficient, taxpayers will have a powerful basis for arguing that many existing FBAR assessments are invalid. If the Court rejects that reasoning, the government will gain substantial support for preserving the current FBAR enforcement framework.
For now, practitioners should view the issue as one of the most significant unresolved constitutional questions in FBAR enforcement, with potentially far-reaching consequences for both pending collection actions and previously assessed penalties.
Crepeau Mourges has significant experience representing individuals and businesses facing civil and criminal enforcement actions, including those related to information reporting penalties and FBAR penalties. Call us today for a free consultation and put our experience to work for you.
