A US district court has dismissed a USD1-million penalty for wilful non-filing of a foreign bank account report (FBAR), finding the US Internal Revenue Service (IRS) had violated the Seventh Amendment to the US constitution by 'acting as prosecutor, jury, and judge'.

The penalty was imposed on defendant Sharnjeet Sagoo, a US citizen with significant financial accounts in England, India and Kenya. The IRS has historically pursued wilful FBAR violations aggressively. When it concluded Sagoo had failed to file the required FBAR reports it followed its long-standing policy of heavy civil penalties, in this case USD1,020,922.

When Sagoo did not pay, the government sought to reduce these assessments to judgment in a federal court. Sagoo countered that the assessments themselves violated her constitutional rights under the Seventh Amendment, which guarantees the right to a jury trial in most cases. It fell to the Northern District of Texas to assess the constitutionality of the penalty.

The court relied on the US Supreme Court's (the Supreme Court’s) 2024 decision in the Jarkesy case, in which the Securities and Exchange Commission had sought to impose 'in-house' civil securities fraud penalties on a defendant. In Jarkesy, the Supreme Court decided this violated the defendant’s Seventh Amendment right to a jury trial. Following this reasoning, the Texas court in Sagoo held that such penalties were akin to common-law fraud and the IRS' claim to charge a penalty was a 'suit at common law' requiring a jury trial. The Seventh Amendment's public rights exception did not apply because similar penalties had been imposed judicially rather than administratively (WL 2689912 ND Tex, 19 September 2025).

Assuming the judgment is upheld and applied broadly, Sagoo would require civil court enforcement for wilful FBAR penalties, granting the right to a jury trial to assess penalties instead of administrative assessments. This may lead the IRS to take a more cautious approach to enforcement, at least in some of its penalty regimes.