Right to jury trial does not apply to accuracy-related penalties

The Tax Court held that, based on its holdings in Silver Moss Properties, LLC, 165 T.C. No. 3 (2025), the right to a jury trial under the Seventh Amendment to the U.S. Constitution does not apply to Sec. 6662 accuracy–related penalties.

Background

Riddle Aggregates LLC was a limited liability company taxed as a partnership subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), P.L. 97–248. On its 2017 Form 1065, U.S. Return of Partnership Income, Riddle claimed a $44,995,000 deduction for a noncash charitable contribution related to the donation of a conservation easement to Atlantic Coast Conservancy Inc. The IRS issued a notice of final partnership administrative adjustment (FPAA) in which it disallowed Riddle’s deduction for the contribution of the easement and imposed Sec. 6662 accuracy–related penalties against the LLC. Riddle, through its tax matters partner, timely petitioned the Tax Court seeking readjustment of the items in the FPAA.

In Tax Court, Riddle made a motion seeking partial summary judgment, asserting that under the Supreme Court’s decision in SEC v. Jarkesy, 603 U.S. 109 (2024), the accuracy–related penalties at issue were subject to the Seventh Amendment’s right to a trial by jury. Because the Tax Court could not provide a trial by jury, Riddle argued that the penalties were not assessable as a matter of law because of the application of the Seventh Amendment and should be reduced to zero.

The Tax Court’s decision

The Tax Court, based on its holdings in Silver Moss, held that the Seventh Amendment right to a jury trial does not apply to Sec. 6662 accuracy–related penalties and that the accuracy–related penalties determined by the IRS in the FPAA issued to Riddle were not unassessable as a matter of law. Therefore, it denied Riddle’s motion for partial summary judgment.

In Silver Moss, the Tax Court addressed whether the Seventh Amendment prevented the Tax Court from adjudicating Sec. 6663 civil fraud penalties against a taxpayer in light of the Supreme Court’s decision in Jarkesy. In Jarkesy, the Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.

The Tax Court held in Silver Moss that the Seventh Amendment does not apply to suits against the sovereign and that Congress had not otherwise consented to trial by jury in TEFRA partnership–level actions. Therefore, the court could fully adjudicate the Sec. 6663(a) civil fraud penalty at issue in that case. In Riddle’s case, the court found that the LLC’s claim that the Seventh Amendment applies to Sec. 6662 accuracy–related penalties was fully resolved by its holding in Silver Moss and saw no reason to revisit that holding.

The Tax Court also found that its holding in Silver Moss that the public–rights exception to the Seventh Amendment applies to the Sec. 6663 civil fraud penalty applied with equal force to the Sec. 6662 accuracy–related penalty. In Silver Moss, the court defined “public rights” as “actions that historically could have been determined by the executive and legislative branches alone, even where they were ‘presented in such form that the judicial power [wa]s capable of acting on them'” (Silver Moss Properties, LLC, slip op. at 7, quoting Murray’s Lessee v. Hoboken Land & Improvement Co.,59 U.S. 272, 284 (1855)).

According to the court, revenue collection and related penalties have long been recognized to fall within the Seventh Amendment’s public–rights exception. The court, after reviewing the history of the accuracy–related penalty, concluded that it is related to the collection of revenue and therefore falls squarely within the public–rights exception.

Reflections

The Tax Court found that Riddle’s motion for partial summary judgment suggested that it fundamentally misapprehended the nature of its own suit, focusing largely on circumstances in which the government brought judicial actions against taxpayers (as was the case in Jarkesy). Riddle, like the taxpayer in Silver Moss, however, brought suit against the government. Thus, the court stated, “In this context the analytical framework reflected in [Riddle’s] Motion papers is inapplicable, and the authorities on which [Riddle] relies are inapposite.”

Riddle Aggregates, LLC, 165 T.C. No. 12 (2025)

Contributor

James A. Beavers, CPA, CGMA, J.D., LL.M., is The Tax Adviser’s tax technical content manager. For more information about this column, contact thetaxadviser@aicpa.org.