Seventh Amendment FBAR Penalty Violation Challenge Successful

Seventh Amendment FBAR Penalty Violation Challenge Successful

Seventh Amendment FBAR Penalty Violation Challenge Successful

There was a recent Federal District Court decision that may impact the rights afforded to taxpayers facing willful FBAR penalties and how courts proceed with FBAR penalties that were not properly assessed. In the case of Sagoo, the defendant was assessed willful FBAR (foreign bank and financial account form, FinCEN Form 114) penalties approaching $2,000,000 (including interest). She challenged the FBAR penalty on various grounds, including the claim that she was denied the right to a jury trial in violation of the Seventh Amendment. The defendant argues that a jury trial should have occurred before penalties were assessed, not after. The court granted the defendant’s motion to dismiss, with prejudice.

As provided by the court:

• • • “[T]he Government here cites no authority “supporting the proposition that the constitutional guarantee of a jury trial is honored by a trial occurring afteran agency has already found the facts, interpreted the law, adjudged guilt, and levied punishment.” AT&T, Inc. FTC, 135 F.4th 230, 242 (5th Cir. 2025) (emphasis added).”

Let’s briefly look at some of the key facts of the case and the court’s rationale by citing to the court’s decision:

U.S. v. Sagoo

• • • Enter this lawsuit. During 2011, 2012, and 2013, Ms. Sagoo was a United States person within the meaning of Section 5314(a). Also during this time, Ms. Sagoo held an interest in multiple financial accounts at financial institutions in Kenya, India, and England. In 2011, the total balance of these accounts was $1,445,188. In 2012, the total balance of these accounts was $1,503,358. And in 2013, the total balance of these accounts was $1,769,355.

    • Despite Section 5314(a)’s reporting requirements to disclose financial interests in foreign financial accounts, Ms. Sagoo did not timely file FBARs for those years. So, on December 2, 2022, a delegate of the Internal Revenue Service (“IRS”) assessed a penalty of $1,020,922.50 against Ms. Sagoo for willfully failing to report her foreign financial interests in 2011, 2012, and 2013. On December 15, 2022, Ms. Sagoo received notice of the assessed FBAR penalties and a demand for payment. Ms. Sagoo did not pay the FBAR penalties assessed against her. After her failure to pay, the IRS identified possible computational issues with the penalty.

    • The Government filed suit, requesting that this Court reduce the assessed FBAR penalties to judgment in an amount that the IRS will recalculate in future proceedings. Ms. Sagoo has moved to dismiss the Government’s Complaint under Federal Rule of Civil Procedure 12(b)(6).⁴

    • The Government brings this action requesting that this Court enter judgment for penalties under 31 U.S.C. §5321(a)(5)(C).⁵ Ms. Sagoo moves to dismiss this action under Rule 12(b)(6) for failure to state a claim. Specifically, Ms. Sagoo argues that the Government acted in violation of (1) the Seventh Amendment, (2) the statutory language of Section 5314, (3) the statutory language of Section 5321(a)(5) and the Administrative Procedure Act, and (4) the Eighth Amendment’s Excessive Fines Clause.⁶ As shown below, the Court holds the FBAR penalty assessment did not comply with the Seventh Amendment.

    • Therefore, the Court GRANTS Ms. Sagoo’s Motion to Dismiss. Accordingly, the Court does not address Ms. Sagoo’s other arguments for dismissal. Despite the historical significance and protection of the Seventh Amendment, the Government here cites no authority “supporting the proposition that the constitutional guarantee of a jury trial is honored by a trial occurring after an agency has already found the facts, interpreted the law, adjudged guilt, and levied punishment.” AT&T, Inc. v. FTC, 135 F.4th 230, 242 (5th Cir. 2025) (emphasis added). Indeed, as the Fifth Circuit recently held in AT&T, a jury trial that follows an agency’s assessment of civil penalties falls short of what the Seventh Amendment guarantees. Id. at 241-42. The Fifth Circuit provided three reasons.

    • First, an “after-the-fact jury trial” does not protect an individual’s Seventh Amendment right because the agency already adjudicated liability without the benefit of a neutral factfinder. Id. at 242. Here, the Secretary of the Treasury and the IRS “acted as prosecutor, jury, and judge.” Id. at 241. It investigated Ms. Sagoo, determined that she was liable, and assessed a penalty based on their own factual conclusions. This fundamentally undermines a core function of the Seventh Amendment to provide a neutral factfinder for suits at common law. Jarkesy, 603 U.S. at 133; see also Dimick, 293 U.S. at 486 (“Maintenance of the jury as a fact-finding body is of such importance and occupies so firm a place in our history and jurisprudence.”).

    • Second, an after-the-fact trial does not protect an individual’s Seventh Amendment right because the adjudication and civil penalties come with “real world impacts.” AT&T, 135 F.4th at 241-42. These impacts include the threat to either pay or get sued, reputational harm, and administrative offsets. Id.; 31 U.S.C. §3716. Here, the Government brought this action “to reduce to judgment and collect civil penalties assessed against [Ms. Sagoo].”¹² Hence, a real-world consequence of the IRS’s assessment is that the Government can collect Ms. Sagoo’s FBAR penalties through administrative offsets before a jury ever determined that she was liable to the government for any amount of money.

    • Third, an after-the-fact trial does not protect an individual’s Seventh Amendment right when the after-the-fact trial is the only opportunity for an individual to exercise her Seventh Amendment right. AT&T, 135 F.4th at 241-42. Ms. Sagoo only has access to an Article III court with a jury after the penalty has been assessed. And even after the penalty is assessed, Ms. Sagoo does not have the opportunity to exercise her Seventh Amendment rights unless she refuses to pay the penalty and the Treasury chooses to bring an action to convert the penalty into a judgment. See id. at 242 (holding that “defy[ing] a multi-million dollar penalty” and “wait[ing] for DOJ to sue” just to gain access to Seventh Amendment rights is unconstitutional).

    • Like the Fifth Circuit in AT&T, “[n]o one denies the [IRS]’s authority to enforce laws” requiring individuals to report their foreign financial bank accounts. Id. But the IRS “must do so consistent with our Constitution’s guarantees of an Article III decisionmaker and a jury trial.” Id. Because the Government (1) adjudicated liability and levied civil penalties against Ms. Sagoo (2) that had real world consequences, and (3) an after-the-fact trial brought by the Government would be Ms. Sagoo’s sole opportunity to appear before a jury, the Court holds that the Government violated Ms. Sagoo’s Seventh Amendment right to a civil jury trial.¹³ Accordingly, the Court must DISMISS this action.¹⁴

Conclusion

• • • For the foregoing reasons, the Court GRANTS Ms. Sagoo’s Motion to Dismiss (ECF No. 8).

    • The Government’s claims are DISMISSED with prejudice. Separate Final Judgment shall issue.

    • By contrast, Ms. Sagoo explains this “suit is not one to determine whether to impose a penalty; rather, it is one to ‘reduce [an already assessed] penalty to judgment.’”¹⁰ She contends the agency’s underlying assessment “is invalid because the penalized individual is guaranteed a jury trial in an Article III court before such a penalty can be assessed.”¹¹ The Court agrees with Ms. Sagoo.

    • The framers adopted the Seventh Amendment to secure the right to a civil jury trial “against the passing demands of expediency or convenience.” Reid v. Covert, 354 U.S. 1, 10 (1957). This right is “’of such importance and occupies so firm a place in our history and jurisprudence that any seeming curtailment of the right’ has always been and ‘should be scrutinized with the utmost care.’” Jarkesy, 603 U.S. at 121 (quoting Dimick v. Schiedt, 293 U.S. 474, 486 (1935)).

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures, which is typically the preferred program of the two streamlined procedures. That is because under this program, Taxpayers can file original returns, and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.