Each year, the IRS imposes accuracy-related penalties on 599,000 taxpayers, fraud-related penalties on 1,369 taxpayers, and bans on 2,724 taxpayers from claiming low-income tax credits. These punitive actions often happen with inadequate explanation, convoluted appeals processes, and no right to a jury trial. With no independent decision-maker, no jury, and little due process, it is no surprise that many taxpayers choose not to challenge these penalties, even when they are in the right.
This lack of a jury trial is despite the Constitution’s Seventh Amendment, which guarantees that “[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.” In 2024, the Supreme Court held in SEC v. Jarkesy that defendants have a right to a jury trial for penalties imposed by the Securities and Exchange Commission (SEC). On January 21, NTU and the Center for Taxpayer Rights filed a joint brief asking the Supreme Court to extend the Jarkesy principle to the IRS, and hold that the Seventh Amendment applies to tax penalties.
Our brief reviews the common law history to show that “Suits at common law” included penalties after alleging an accuracy error (negligence) or deliberate misrepresentation (fraud). In 1855, the Supreme Court held that jury trials do not apply to tax assessment and collection, but in England and early America tax penalties were historically imposed through judge and jury.
For example, Parliament’s Stamp Act of 1765 provided for imposing penalties on American colonists but departed from common law by bringing them in vice-admiralty courts that did not have juries – an action that contributed to the Revolution’s rallying cry, “no taxation without representation.” The first two tax laws of the United States, even before the Bill of Rights was ratified, were the Whiskey Tax and Carriage Tax, both of which provided for trials by jury.
Our brief also counters a recent decision by the Tax Court, Silver Moss Properties v. Commissioner, that concluded that the Seventh Amendment does not apply to tax penalties. That court held that the Seventh Amendment applied in Jarkesy because the SEC was standing in the shoes of private litigants in imposing a fine for fraud against individuals, while the IRS is imposing penalties on behalf of the federal government. We write that what matters is not whether a “government right” versus a “private right” is involved, but the nature of the claim, and that historically fraud arising from collection of taxes were imposed by judges and juries.
The day before we filed our brief, the IRS submitted a notice that they wouldn’t even file a brief in the case. However, on February 13, the Supreme Court ordered the IRS to submit a brief. This brief is due March 16, and then the Court will decide whether to hear the case.
The case is Herbert Hirsch, et al. v. United States Tax Court, U.S. No. 25-739.