IRS “Fraudster” Label Triggers Supreme Court Fight

The IRS can brand Americans “fraudsters” and hit them with life-changing penalties—yet a growing legal fight says the Constitution may require a jury of citizens before the government cashes in.

Story Snapshot

Two couples accused of civil tax fraud are asking the Supreme Court to recognize a Seventh Amendment right to a jury trial before civil fraud penalties are finalized.
The U.S. Tax Court rejected their jury demand, pointing taxpayers to a “pay first, sue later” refund route that can be financially crushing.
After the Supreme Court’s 2024 SEC v. Jarkesy decision strengthened jury-trial rights in agency fraud penalties, taxpayers are pressing to apply that logic to IRS fraud penalties.
Lower courts and commentators disagree on whether tax penalties are “public rights” that Congress can assign to non-jury tribunals.

A Supreme Court petition puts IRS fraud penalties under a constitutional spotlight

Petitioners in Hirsch v. IRS (Docket 25-739) are challenging how the federal government imposes civil tax fraud penalties under Internal Revenue Code § 6663. They fought the IRS in U.S. Tax Court and demanded a jury trial, arguing that fraud penalties resemble classic common-law fraud claims that historically went to juries under the Seventh Amendment. The Tax Court denied the request, leaving them to contest the penalty without a jury.

The procedural posture matters as much as the principle. The Tax Court is a specialized forum where taxpayers can dispute asserted liabilities without first paying the full amount. But it does not use juries. When taxpayers demand a jury, the government’s common answer is a different path: pay the assessment and then sue for a refund in federal district court, where juries can be available. Critics argue that “pay first” isn’t a real option when penalties are enormous.

Why Jarkesy changed the conversation about agency power

The Supreme Court’s 2024 decision in SEC v. Jarkesy held that when the government seeks civil penalties for fraud-like claims, the Seventh Amendment can require a jury trial. That ruling challenged the modern habit of routing major enforcement actions through administrative processes that look and feel like courtroom litigation but lack citizen juries. Taxpayers and amici now argue that IRS civil fraud penalties are similarly punitive and historically jury-triable.

Opponents of extending Jarkesy to tax cases point to a key distinction: the SEC case involved fraud claims that resemble disputes between private parties, while tax penalties involve the government’s revenue system. They argue that Congress has broader latitude to design administrative mechanisms for collecting revenue and adjudicating disputes against the United States. The dispute turns on whether these penalties are treated as “public rights” matters—or traditional legal claims requiring juries.

The Tax Court’s position: sovereign immunity, public rights, and a long-standing system

In 2025, the Tax Court’s decision in Silver Moss Properties v. Commissioner declined to extend Jarkesy and upheld administrative adjudication of civil tax fraud penalties without juries. Analyses of the case emphasize two recurring defenses: sovereign immunity (the idea that the United States can set conditions for how it may be sued) and the “public rights” framework used to justify non-jury adjudication in certain government-structured programs, including revenue collection.

Supporters of jury access counter that fraud penalties are not mere bookkeeping adjustments. A civil fraud penalty can impose a severe, additional sanction beyond the tax owed, based on an accusation of intentional wrongdoing. That accusation carries reputational harm and can pressure settlements even when facts are disputed. The constitutional argument is not that Congress can’t collect taxes, but that when the government accuses citizens of fraud and demands punitive penalties, citizen juries historically served as a check.

The “pay-first” problem and why timing is now a fault line

The fight also centers on timing: must a jury be available before the penalty is fixed and enforced, or is a later refund suit enough? Some post-Jarkesy discussions describe emerging fault lines across penalty regimes, with certain cases allowing jury trials only after assessment and payment, while others question whether prepayment requirements effectively deny a jury in practice. The petitioners argue that delaying a jury until after payment can functionally erase the Seventh Amendment protection for ordinary families and small businesses.

Taxpayers Accused of Fraud Have the Right to a Jury https://t.co/uWYSsyzv4n via @CatoInstitute

— Michael Chapman (@MWChapman) January 29, 2026

For conservatives who watched unelected bureaucracies expand power for decades, this case is a reminder that constitutional rights often live or die in procedure. A system that tells Americans to pay first—and only then ask a jury to review whether the government was right to call them fraudsters—raises serious rule-of-law concerns. The Supreme Court has not yet decided whether to hear the case, but if it does, the ruling could reshape how the IRS and other agencies pursue penalty-driven enforcement.