In the wake of the Supreme Court’s decision in SEC v. Jarkesy, 144 S. Ct. 2117 (2024), tax practitioners have closely monitored how the judiciary would apply the Seventh Amendment’s jury trial requirement to Internal Revenue Service (IRS) penalty assessments. In Riddle Aggregates, LLC v. Commissioner, 165 T.C. No. 12 (Dec. 15, 2025), the Tax Court addressed this issue head-on regarding accuracy-related penalties asserted in a partnership-level proceeding.

This article details the facts, the constitutional arguments raised by the petitioner, and the Tax Court’s technical analysis rejecting the applicability of the Seventh Amendment to civil tax penalties under I.R.C. § 6662.

Background and Procedural History

The case involves a partnership proceeding under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). For the 2017 tax year, Riddle Aggregates, LLC filed a Form 1065 claiming a $44,995,000 charitable contribution deduction arising from the donation of a conservation easement to the Atlantic Coast Conservancy, Inc..

Following an audit, the IRS issued a Notice of Final Partnership Administrative Adjustment (FPAA). The FPAA disallowed the deduction and asserted an "accuracy-related penalty pursuant to section 6662(a), (b), (c), (d), (e), and (h)". The tax matters partner, Ornstein-Schuler, LLC, timely petitioned the Tax Court for a readjustment of the partnership items.

The Petitioner’s Request for Relief

The petitioner filed a Motion for Partial Summary Judgment, leveraging the Supreme Court’s recent holding in Jarkesy. The petitioner argued that the accuracy-related penalties determined by the IRS were "not assessable as a matter of law because of the application of the Seventh Amendment to the U.S. Constitution".

Specifically, the petitioner contended that under Jarkesy, the penalties were "subject to the constitutional protections under the Seventh Amendment providing a right to a jury trial in suits at common law". The petitioner’s core argument was jurisdictional and constitutional: "[b]ecause the Tax Court does not offer a jury trial and because Tax Court judges are not Article III judges, the Court cannot authorize recovery of the fraud and accuracy penalties at issue here". Consequently, the petitioner requested that the Court "redetermine the penalties to be zero".

The Court’s Analysis of the Law

Judge Kerrigan, writing for the Court, denied the motion, grounding the decision in the recently decided Silver Moss Properties, LLC v. Commissioner, 165 T.C. No. 3 (Aug. 21, 2025), and established Supreme Court precedent regarding the "public rights" exception.

Suits Against the Sovereign

The Court first addressed the nature of the litigation. Unlike Jarkesy, which involved the government suing a private party for civil penalties, a Tax Court petition is a suit against the government. The Court noted that "petitioner itself fundamentally misapprehends the nature of its own suit". The Court explained:

"But here petitioner sued the government, not the other way around. And it is petitioner who seeks to prevent the government from taking the next step in assessing and collecting administratively the tax the government believes is due . . . In this context the analytical framework reflected in petitioner’s Motion papers is inapplicable, and the authorities on which petitioner relies are inapposite.".

Relying on Silver Moss, the Court reiterated that "the Seventh Amendment does not apply to suits against the sovereign and that Congress has not otherwise consented to trial by jury in TEFRA partnership-level actions".

The Public Rights Exception

The Court further held that even if the Seventh Amendment were implicated, the penalties fall within the "public rights" exception. The Court cited a "long-standing line of authorities from the Supreme Court" establishing that revenue collection is a public right.

The Court drew a direct line to Helvering v. Mitchell, 303 U.S. 391 (1938). In Mitchell, the Supreme Court classified the predecessor to the modern negligence penalty as "[o]bviously" intended by Congress to be "civil incidents of the assessment and collection of the income tax". Judge Kerrigan noted that while Silver Moss specifically addressed civil fraud penalties under § 6663, the conclusion regarding public rights "applies with equal force here" to accuracy-related penalties.

Legislative Intent and Remedial Purpose

The Court provided a detailed analysis of the legislative history of the accuracy-related penalty to demonstrate its remedial nature. The Court observed that while Congress consolidated various penalties into § 6662 under the Omnibus Budget Reconciliation Act of 1989 (OBRA 89) to prevent stacking, it did not alter the substantive nature of the penalties.

The Court rejected the petitioner’s attempt to analogize § 6662 penalties to Foreign Bank and Financial Accounts (FBAR) penalties, which were deemed "fines" under the Eighth Amendment in United States v. Schwarzbaum, 127 F.4th 259 (11th Cir. 2025). The Tax Court distinguished Schwarzbaum, noting it dealt with the Eighth Amendment, not the Seventh. Instead, the Court relied on Little v. Commissioner, 106 F.3d 1445 (9th Cir. 1997), which found that negligence and substantial understatement penalties are "purely revenue raising because they serve only to deter noncompliance with the tax laws by imposing a financial risk on those who fail to do so".

Application of Law to Facts

Applying these legal principles to Riddle Aggregates, the Court found no genuine dispute of material fact that would support the constitutional challenge. The Court traced the statutory lineage of the penalties at issue—negligence, substantial understatement, and valuation misstatements—from the Revenue Act of 1926 through the 1954 Code to the current § 6662.

Because the text of the negligence penalty has undergone no substantive changes regarding its nature since the Supreme Court’s ruling in Mitchell, the Court concluded its purpose remains remedial. Therefore, the "accuracy-related penalty under section 6662(a), (b)(1)–(3), (c), (d), (e), and (h) is related to the collection of revenue and therefore falls squarely within the public rights exception".

Conclusion

The Tax Court denied the petitioner’s Motion for Partial Summary Judgment. This decision reinforces the holding in Silver Moss and signals that the Tax Court will not entertain Seventh Amendment challenges to standard deficiency and accuracy-related penalties based on Jarkesy.

For tax professionals, the ruling clarifies that the accuracy-related penalties under § 6662(a), (b)(1)–(3), (c), (d), (e), and (h) remain "civil incidents of the assessment and collection of the income tax" and are not subject to a jury trial in the Tax Court.

Prepared with assistance from NotebookLM.