Last Updated 11 months ago
Many U.S. citizens living abroad call us in a panic that the IRS may give them heavy penalties for not filing FBARs. After this latest court decision, they may be able to sleep a bit better at night.
A recent federal court decision in United States v. Sagoo could reshape how the U.S. government enforces FBAR (Foreign Bank Account Report) penalties. The case centers on the Seventh Amendment right to a jury trial and could have far-reaching implications for Americans living in Israel and abroad with foreign financial accounts.
Key Points
- The court dismissed the IRS’s attempt to collect FBAR penalties, ruling that the assessment violated the taxpayer’s constitutional right to a jury trial.
- This follows the Supreme Court’s decision in SEC v. Jarkesy (2024)*, which emphasized the right to a jury trial when the government imposes civil penalties.
- The decision could invalidate or delay ongoing and future FBAR enforcement actions across the country.
- U.S. citizens in Israel facing FBAR penalty assessments should consult tax experts immediately to evaluate their situation in light of this case.
The Case at a Glance
The case involved Sharnjeet K. Sagoo, a U.S. citizen who held foreign accounts in Kenya, India, and England between 2011 and 2013. The IRS assessed over $1 million in FBAR penalties against her for allegedly willful non-reporting of those accounts. When she did not pay, the government sued to collect the penalties.
However, the U.S. District Court for the Northern District of Texas ruled in September 2025 that the IRS violated her Seventh Amendment rights. The court dismissed the government’s case entirely, with prejudice, meaning it cannot refile the same claims.
The Seventh Amendment Issue
The Seventh Amendment guarantees the right to a jury trial in civil cases. The court held that the IRS cannot both assess and enforce FBAR penalties before a taxpayer has had the chance to present their case to a neutral jury. In the Sagoo case, the IRS had already investigated, determined liability, and imposed a penalty before the taxpayer could see a jury. That, the court ruled, undermined the fundamental constitutional guarantee of a fair trial.
The decision leaned heavily on recent cases like SEC v. Jarkesy, which reaffirmed that administrative agencies cannot unilaterally impose monetary penalties without offering an Article III court trial first.
Why This Matters for U.S. Citizens in Israel
Many Americans in Israel have FBAR filing obligations due to foreign bank accounts and investments.
A different court case in recent years ruled that a non-willful penalty would be limited to $10,000 per FBAR and not per account. That was the first big win for taxpayer rights.
This new ruling, however, takes it one step further by limiting the IRS’s ability to assess willful penalties. This could change how FBAR penalties are pursued and potentially invalidate penalties already assessed. It also reinforces the importance of due process protections in IRS enforcement actions.
If the IRS cannot assess FBAR penalties through its internal procedures without a jury trial, many ongoing cases may need to be paused or restructured. This could be particularly significant for taxpayers who have received FBAR penalty notices or are in administrative appeals.
A Turning Point in FBAR Enforcement
Until now, the IRS has treated FBAR penalties as administrative debts collectible through agency processes. The court in Sagoo found that the practice was unconstitutional when applied to willful FBAR penalties because the agency acted as investigator, prosecutor, judge, and jury all in one.
This ruling suggests that the IRS must obtain a jury verdict before assessing such penalties, not afterward. That shift would dramatically slow down enforcement actions and may give taxpayers more leverage in disputes.
What Happens Next
The government could appeal the Sagoo decision to the Fifth Circuit Court of Appeals. Given the importance of this issue, it could even reach the Supreme Court in the coming years. Until then, taxpayers and advisors should carefully watch for new guidance or government appeals.
Taxpayers with pending FBAR penalty assessments or ongoing negotiations should discuss whether to pause their cases or challenge the penalties on constitutional grounds. The reasoning in Sagoo may open new defenses not previously available.
What You Should Do Now
If you are a U.S. citizen living in Israel with foreign financial accounts, you should:
- Review your past FBAR filings and any outstanding IRS correspondence.
- Consult a qualified U.S. tax advisor who understands cross-border reporting rules.
- Consider the Streamline filing procedures to see if it may still make sense to file something before the IRS comes knocking. Even if they will need to prove guilt before a jury to assess willful penalties.
The outcome of this case could reshape FBAR enforcement for years to come. For many taxpayers, it may mean new opportunities to negotiate or even eliminate penalties previously thought final. If you need help getting back into compliance with the IRS, please contact our office for help.
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