Thinking of vacationing outside the United States when you owe the IRS money? Think again. Congress recently enacted Fixing America’s Surface Transportation (“FAST”) Act, which President Obama signed into law on December 4. Section 32101 of the Act (which is almost 500 pages in length) adds sec. 7345 to the Internal Revenue Code. It is a provision that infringes upon the right of a delinquent taxpayer to travel. Under this section, if the IRS certifies to the State Department that a taxpayer owes more than $50,000 in assessed taxes, penalties and interest, the State Department can deny, revoke or limit the person’s passport. A taxpayer is given the right to file a suit in district court or Tax Court to determine whether certification was erroneous. A taxpayer may also get the ban lifted by paying the liability, obtaining innocent spouse relief, or entering into an installment agreement or offer in compromise. The power to prohibit a citizen from traveling outside the country due to non-payment of taxes was once available only if a federal court determined that the Government had made the extraordinary showing required to obtain the writ ne exeat republica.
Writ ne exeat republica is a Latin phrase that means “let him not leave the republic.” The writ is issued to prohibit a person from leaving the country without permission of the Court or until certain conditions are fulfilled. Of ancient lineage (you can tell this by the Latin name), federal district courts are authorized in tax cases to issue the writ under Internal Revenue Code sec. 7402(a), which provides in part that the “district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica … as may be necessary or appropriate for the enforcement of the internal revenue laws.”
As recently as 2014, giving the IRS this power was almost unthinkable. In February 2014, Professor Keith Fogg noted on his Procedurally Taxing blogsite that “this writ receives very little usage and should not cause concern for most taxpayers.” It was normally only used to force a taxpayer to repatriate assets he had moved overseas in order to pay a large delinquent tax liability. A 1998 IRS Field Service Advisory stated that the writ can only be issued if the Service could show that the taxpayer 1) owes a significant tax liability, 2) has the ability to pay the tax and 3) has chosen instead to attempt to place both himself and his assets outside the reach of the United States.
Typical of cases where the Government obtained a court order restraining travel of a taxpayer who owed a large tax debt was United States v. Barrett, 2014 U.S. Dist LEXIS 10888 (D.Colo. 2014). The Barretts had filed a fraudulent return for 2007 and got a $217,000 refund. It took the IRS a while to figure out that the Barretts had fleeced it. By the time it did so, the Barretts had moved themselves and their assets overseas. By September, 2010, the Barretts owed over $350,000 of tax, penalties and interest. The US filed a lawsuit seeking a writ ne exeat republica in September, 2010, and two months later the court issued the writ. Had the Barretts stayed overseas, they wouldn’t have cared. But they came back to attend their daughter’s wedding. Their passports and travel documents were seized so they could not leave the US.
The Barretts tried to convince the court to dissolve the writ, claiming that their assets had little value. In refusing to dissolve the writ, the court applied a four-part test that the Government needed to meet in order for it to obtain the writ. The Government had to show that 1) it has a substantial likelihood of success on the merits, 2) without the writ it will suffer irreparable injury, 3) the injury to it outweighs the harm to the taxpayers and 4) issuing the writ would serve the public interest. The first part of the test was satisfied by the fact that there was a large tax liability owed the IRS. The second and third parts were satisfied by the facts that the Barretts fled the country and placed their assets overseas in the first place, lied on financial statements and took steps to avoid paying tax. The fourth part was satisfied by the Government’s interest in collecting taxes owed it.
In its order denying the motion of the Barretts to dissolve the writ, the district court stated:
Because the writ restrains the Barretts’ constitutional right to travel, the government bears a heavy burden to show extraordinary circumstances warranting such relief.
With new section 7345, the government no longer will bear “a heavy burden to show extraordinary circumstances” in order to restrain a taxpayers’ “constitutional right to travel.” All that will be needed will be for the IRS to certify to the State Department that the taxpayer owes the requisite amount of taxes. You can always count on Congress to be a bulwark in the defense of our rights and liberties. Or maybe they didn’t have the time to read a 500- page bill before voting to enact it into law.
By the way, did I mention that sec. 32102 of the FAST Act requires the IRS to farm out the collection of “inactive accounts receivable” (i.e., accounts that the IRS has removed from its active collection inventory due to lack of resources or inability to locate the taxpayer) to private debt collection agencies? Funny how tax provisions get buried in bills that ostensibly have nothing to do with taxes these days.
Robert S. Horwitz – For more information please contact Robert S. Horwitz – firstname.lastname@example.org Mr. Horwitz is a principal at Hochman, Salkin, Rettig, Toscher & Perez, P.C., a former AUSA of the Tax Division of the Office of the U.S. Attorney (C.D. Cal) and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at http://www.taxlitigator.com