Tax Talk Thursday: The Sagoo Case and Its Ripple Effect on International Tax Enforcement

What happens when the IRS acts as prosecutor, jury, and judge—all at once? That’s the question at the heart of the United States v. Sagoo case (2025), a landmark court decision that could reshape how international tax penalties are assessed.

The Case in a Nutshell

Sharnjeet K. Sagoo, a U.S. citizen with financial accounts in Kenya, India, and England, was hit with massive FBAR penalties (that’s Form FinCEN 114, for reporting foreign bank accounts). The IRS claimed she willfully failed to report those accounts, imposing penalties of nearly $750,000.

Sagoo didn’t pay—and instead, she fought back.

The court ruled that the IRS’s penalty process violated the Seventh Amendment, which guarantees the right to a jury trial in cases involving monetary penalties. Why? Because the IRS investigated, decided, and assessed the penalty without ever giving Sagoo the chance to have her case heard by a jury.

In other words, the IRS acted as both referee and player in the same game—and the court said, “Not so fast.”

Why This Case Matters for International Tax

You might be thinking: “That’s just FBAR—what’s the big deal?”But here’s the kicker: the logic in Sagoo doesn’t just apply to FBAR penalties. It could impact how the IRS enforces penalties across many international reporting forms—including Forms 3520, 3520-A, 5471, 8865, 8858, and more.

Let’s break it down:

1. Constitutional Shake-Up for IRS Penalties

The court borrowed reasoning from SEC v. Jarkesy (2024), another major case where the Supreme Court said administrative agencies can’t issue big fines without a jury trial. Now, with Sagoo, that same logic is being applied to IRS penalty enforcement.If this trend continues, the IRS may have to rethink how it assesses penalties for cross-border reporting failures.

2. New Defense for Taxpayers with Foreign Accounts

Taxpayers facing large “willful” FBAR or foreign information return penalties might now argue that those assessments violate constitutional rights. This could lead to reduced penalties, settlements, or overturned assessments for some taxpayers who were never given their day in court.

3. IRS May Change Enforcement Strategy

Because of this case, the IRS might:

• File more cases in federal court rather than issuing administrative penalties first.

• Expand voluntary disclosure programs to encourage taxpayers to come forward before penalties are imposed.

• Delay or modify some international penalty assessments while the constitutional questions are sorted out.

  
  

4. U.S. Expats and Dual Nationals Take Note

If you’re a U.S. citizen abroad—or have dual citizenship with accounts overseas—this case directly affects you. Sagoo reminds us that foreign account reporting is still required, but how penalties are enforced is under new scrutiny.

What You Should Do If You Have Foreign Accounts

This case doesn’t eliminate reporting requirements—but it does change how penalties might be challenged. Here’s what to keep in mind:

• Stay Compliant: File your FBARs, Forms 8938, 3520, 5471, etc., on time and correctly.

• If You’re Behind, Don’t Panic: The IRS still has streamlined and voluntary disclosure programs that can help you catch up.

• Know Your Rights: If you’ve been assessed large penalties without a chance to dispute them in court, consult an experienced international tax professional.

• Monitor Updates: Other courts may rule differently, and the IRS could appeal the Sagoo decision. This area of law is evolving quickly.

  
  

The Sagoo case is more than a courtroom drama—it’s a turning point in how the IRS handles international tax enforcement. The balance between compliance and constitutional fairness is shifting, and taxpayers with cross-border ties should pay close attention.

If you’re unsure how this case might affect your foreign account reporting—or if you’ve received penalty notices for missing international forms—reach out to info@mkhstaxgroup.com