The United States Tax Court, in Silver Moss Properties, LLC v. Commissioner, 165 T.C. No. 3 (2025), recently addressed a critical question for tax professionals: whether the Seventh Amendment to the U.S. Constitution guarantees a right to a jury trial for civil fraud penalties under Internal Revenue Code (I.R.C.) Section 6663(a) in a Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) partnership-level proceeding. The court unequivocally held that it retains the authority to adjudicate such penalties without a jury.

Facts of the Case

The case involved Silver Moss Properties, LLC (Silver Moss), a partnership subject to TEFRA audit and litigation procedures, with its principal place of business in Mississippi. In 2017, Silver Moss acquired land in Taylor County, Florida, and subsequently donated a conservation easement on that land to Atlantic Coast Conservancy, Inc.. The partnership claimed a charitable contribution deduction under I.R.C. Section 170 on its partnership return.

The Commissioner of Internal Revenue (Respondent) issued a Notice of Final Partnership Administrative Adjustment (FPAA), largely disallowing the deduction attributed to the easement. Silver Moss, through its tax matters partner, Silas Mine Investments, LLC, timely petitioned the Tax Court to challenge the FPAA. The Commissioner later amended the Answer to assert a civil fraud penalty against the partnership under I.R.C. Section 6663(a).

Taxpayer’s Request for Relief

In response to the asserted fraud penalty, Silver Moss filed a Motion for Partial Summary Judgment. The petitioner contended that the Tax Court was barred from adjudicating the civil fraud penalty. Citing the Supreme Court’s decision in SEC v. Jarkesy, 144 S. Ct. 2117 (2024), Silver Moss argued that the Seventh Amendment guarantees a right to a trial by jury in such actions, an option not available in the Tax Court. The petitioner urged that "a court cannot adjudicate a common law fraud penalty, like that of [Section] 6663, without providing an opportunity for a trial by a jury".

Court’s Analysis of the Law

The Tax Court first outlined the summary judgment standard, which permits judgment if there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. The Court then proceeded with a comprehensive analysis focusing on two main doctrines: sovereign immunity and the public rights exception to the Seventh Amendment.

Sovereign Immunity The court began by emphasizing the foundational principle of sovereign immunity: the United States, as sovereign, is immune from suit unless it consents to be sued, and the terms of that consent define a court’s jurisdiction. This doctrine firmly establishes that "the Seventh Amendment right to trial by jury does not apply in actions against the Federal Government", citing Lehman v. Nakshian, 453 U.S. 156, 160 (1981). The court underscored that this holds true even when the government asserts a counterclaim that might otherwise implicate the Seventh Amendment, as established in McElrath v. United States, 102 U.S. 426, 440 (1880).

Under TEFRA, the Internal Revenue Service (IRS) had the authority to initiate partnership-level proceedings to adjust partnership items. Partnerships could challenge the resulting FPAA in the Tax Court, the U.S. Court of Federal Claims, or a U.S. district court. While I.R.C. Section 6226 permitted judicial review of an FPAA, including the applicability of penalties, it did not confer a right to a jury trial. The court highlighted that there is "no right or mechanism to a trial by jury in either this Court or the Court of Federal Claims", citing cases such as Mathes v. Commissioner, 576 F.2d 70, 71–72 (5th Cir. 1978). The court also noted that the U.S. Court of Appeals for the Eleventh Circuit recently denied writs of mandamus seeking to compel the Tax Court to empanel juries for Section 6663(a) fraud penalties, as seen in In re Hirsch, Nos. 25-10420, et al., slip op. at 3 (11th Cir. May 30, 2025).

Furthermore, the court explained that even in U.S. district courts, a jury trial is generally not available for TEFRA partnership-level actions. While tax refund suits under 28 U.S.C. Section 1346(a)(1) may afford a jury trial, TEFRA partnership-level actions are brought under 28 U.S.C. Section 1346(e), which is not subject to a jury trial provision. Therefore, Congress has not assented to trial by jury in TEFRA partnership-level actions, nor has it enabled the Tax Court or the Court of Federal Claims to empanel juries.

Public Rights Exception The court then delved into the "public rights" exception to the Seventh Amendment. The Seventh Amendment guarantees a jury trial in "[s]uits at common law," which refers to actions that are "legal in nature" and analogous to those heard by late 18th-century English courts of law, citing Jarkesy, 144 S. Ct. at 2128 and Tull v. United States, 481 U.S. 412, 417 (1987). However, Congress may assign the adjudication of "public rights" to an administrative agency without violating the Seventh Amendment, as held in Atlas Roofing Co. v. Occupational Safety & Health Rev. Comm’n, 430 U.S. 442, 455 (1977). Public rights are defined as actions that historically could have been determined by the executive and legislative branches alone.

The Supreme Court’s Decision in Jarkesy The court extensively discussed Jarkesy, the very case the petitioner cited, noting that the majority, concurrence, and dissent in Jarkesy all recognized the collection of revenue as a quintessential public right. The Jarkesy majority used the government’s historical power to collect revenue as a benchmark for the scope of this exception, a position reinforced by the Fifth Circuit in AT&T, Inc. v. FCC, 135 F.4th 230, 238–39 (5th Cir. 2025).

Taxation as a Public Right The recognition of revenue collection as a public right predates Jarkesy. Historically, in 18th-century England, while post-collection challenges to tax assessments could involve common law actions like writs of trespass or trover, prepayment challenges were administrative matters, resolved without judicial review or a jury trial. Alexander Hamilton, in The Federalist No. 83, noted that summary proceedings for tax collection were "essential to the efficacy of the revenue laws," and jury trials were largely "out of use" in most cases of taxation. The Supreme Court, in Murray’s Lessee v. Hoboken Land & Improvement Co., 59 U.S. (18 How.) 272, 282, 284 (1855), further confirmed the federal government’s power to use "summary methods" to collect unpaid taxes.

Revenue-Related Penalties The court directly challenged the argument by the Center for Taxpayer Rights, as amicus curiae, that tax penalties traditionally required common law suits with an Article III judge and jury. The court found a stronger tradition of imposing tax penalties through administrative means, both in English and American history. English statutes frequently provided for administrative assessment and adjudication of penalties by local tax commissioners or justices of the peace. While some early American excise tax penalties allowed for collection through suit, often via qui tam actions, this did not establish that all tax penalties must be collected in that manner.

Crucially, the first federal income tax system, established by the Revenue Act of 1862, created a system of direct federal tax administration and collection, and penalties introduced for non-compliance were assessed and collected administratively. The Supreme Court in Oceanic Steam Navigation Co. v. Stranahan, 214 U.S. 320, 339 (1909), affirmed Congress’s competency to impose reasonable money penalties and empower executive officers to enforce them without judicial intervention. The Tax Court found that the federal income tax system has a "lengthy tradition of administratively imposed and collected penalties".

History of Section 6663(a) The court cited Helvering v. Mitchell, 303 U.S. 391 (1938), where the Supreme Court held that the public rights exception applied to Section 293 of the Revenue Act of 1928, a predecessor to the modern Section 6663(a) fraud penalty. In Mitchell, the Court viewed "sanctions imposing additions to a tax" as primarily safeguarding revenue and reimbursing the government for investigation expenses and losses from fraud. It concluded that the determination of facts for such civil penalties could be made by an administrative agency instead of a jury. The court highlighted that Jarkesy did not question the holding in Mitchell. Section 6663(a), though undergoing name and magnitude changes, contemplates the same conduct as its predecessors—an underpayment with fraudulent intent to evade taxes—and is considered a safeguard for the protection of revenue, citing Sadler v. Commissioner, 113 T.C. 99, 102 (1999).

Application of the Law to the Facts and Conclusion

The court found that the petitioner’s argument, based on Jarkesy, that any statutory penalty labeled "fraud" falls outside the public rights exception, misconstrued the Supreme Court’s jurisprudence. The court clarified that Jarkesy instructs courts to consider whether the statutory penalty resembles an action at common law traditionally reserved for jury trials.

The key distinction drawn by the court was that the civil action in Jarkesy involved purported fraud upon private individuals, which could indeed be pursued by a private litigant through a common law fraud action. In stark contrast, Section 6663(a) contemplates fraud upon the federal government, not private individuals. A private litigant cannot pursue a statutory civil tax fraud penalty on behalf of the federal government. Furthermore, Section 6663(a) notably omits traditional elements of common law fraud, such as reliance or causation.

Therefore, the Tax Court concluded that the imposition and collection of the Section 6663(a) penalty "falls squarely within the public rights exception". Because the Seventh Amendment is limited to "suits at common law" and does not apply to suits against the sovereign, it cannot enlarge the limited waiver of sovereign immunity that Congress authorized for challenges to these penalties.

For these reasons, the Tax Court denied Silver Moss Properties, LLC’s Motion for Partial Summary Judgment. This ruling reaffirms the Tax Court’s authority to adjudicate civil tax fraud penalties, including those under I.R.C. Section 6663(a), without providing a jury trial, consistent with long-standing principles of sovereign immunity and the public rights doctrine in tax administration.

Prepared with assistance from NotebookLM.