Holding People Hostage for the Payment of Tax – Writ Ne Exeat Republica

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The IRS conjures up many images as an agency that punishes people.  Most of that imagery is overblown but the power it has to seek a writ ne exeat republica is one circumstance where people should fear the IRS.  Of course, this writ receives very little usage and should not cause concern for most taxpayers.  In United States v. Barrett, No. 1:10-cv-02130 (D. Colo.) an order was issued on January 29, 2014, in a case involving this writ which provides a glimpse into the power of this extraordinary collection device.

I will describe the basic circumstances in which this writ may occur, the practical impediments to its use and the circumstances of the Barrett’s case.  The Barretts’ case involves the review by the district court of an order of the magistrate judge discharging the writ.  The district court declined to discharge the writ leaving the Barretts without the ability to depart the United States for an unspecified time into the future.  At the time of his order, the Barretts had already spent three months without their passports; however, surprising to me they have been and probably still are living with friends rather than living in a federal detention facility.  As with all cases involving this writ, the facts provide more entertainment than the ordinary tax case.

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The case starts with the Barretts filing a fraudulent 2007 income tax return and obtaining a $217,615 refund they should not have received.  The dollar amount of their cheating is important, as will become clearer below, because you need a high dollar amount in order to have the case in the hands of a revenue officer and you generally need a sharp eyed revenue officer in order to identify this type of case.  Once the IRS figured out that the Barretts had fleeced them and assessed a liability against them, it set out to recover the funds.  Meanwhile, the Barretts set out to move their assets and themselves out of the United States and beyond the reach of the IRS.

The writ ne exeat republica is designed for this very situation.  It allows the government to hold someone seeking to flee from the payment of their debt.  The object of holding them is to persuade them to repatriate their assets and satisfy the debt or as much of the debt as possible.   The tricky part for the government involves identifying the individuals who have moved their assets offshore, who are preparing to move themselves offshore and who have not yet done so.  The government not only needs to identify these circumstances but it must do so in time to get to court, obtain the writ and have the federal marshals apprehend the taxpayer about to leave.  As you can imagine the circumstances in which the government can accomplish all of these acts rarely occur, leaving the writ ne exeat republica a little known remedy in the government’s collection arsenal.

A 1998 Field Service Advisory opinion described the writ ne exeat republica as follows:

[A] writ of ne exeat republica is an extraordinary collection remedy which may result in a taxpayer being temporarily confined in prison (if unable to post suitable bon) for the taxpayer’s non-payment of federal taxes, where the Service can show generally: (1) the existence of significant tax liabilities; (2) the taxpayer has a present ability to pay the tax liabilities; but (3) the taxpayer has chosen instead to attempt to place both himself and his assets beyond the collection jurisdiction of the United States.

The writ ne exeat republica is almost 100 years old.  It came into existence in the Revenue Act of 1918.  For some history on the provision and the thinking when it was passed see Anthony E. Rebollo, “The Civil Arrest and Imprisonment of Taxpayers: An Analysis of the Writ of Ne Exeat Republica.”  The article also details the most significant cases involving this writ.  If you read the article, you will see how few of these cases exist.  In representing the IRS for over 30 years with a heavy emphasis on collection matters, I saw only a handful of cases where this writ was even attempted.  The one case I personally worked in which the writ was sought fell short of the writ because of a lack of time to get everything in place in order to apprehend the individual during his brief return to the United States.  The effort to mobilize the necessary legal and law enforcement resources to affect this writ impressed upon me the extraordinary nature of this remedy.  In that case there was an asset that we knew would draw the taxpayer back into the United States on a specific date which turned out to be too close in time to allow for all of the work necessary to obtain and excute the writ.

When taxpayers are out of the country the IRS looks carefully for assets in the United States and for the opportunity to use the collection provisions of tax treaties if the taxpayers have gone to certain countries.  Here the IRS had a slightly different avenue because it preplanned for their return by getting the writ after they left.   This may be the most effective strategy for the IRS.

So, I read with interest the Barrett case looking for clues on how the IRS found out in time the circumstances needed to obtain the writ and apprehend the Barretts.  The facts reveal a slow moving writ case rather than a fast paced one because the IRS obtained the writ here after the Barretts and their money had fled the country.  The situation then became one of waiting for them to return and finding them when they did so.  I do not mean to diminish the effort needed to succeed in the execution of the writ against the Barretts but it presents a different situation than one in which the writ is sought during the brief window before the initial departure or the brief window during reentry and departure.

The IRS initiated the court proceeding for the writ on September 1, 2010, and obtained a writ on December 2, 2010 ordering that the Barretts be (1) restrained from departing the jurisdiction of the Court; (2) required to post security for their tax obligation of over $350,000; (3) held by the U.S. Marshal pending a final hearing; (4) required to produce all books and records of their assets; and (5) prevented from further encumbering their assets.  By the time of this order the Barretts were in Ecuador.  Although they were served in Ecuador, the district court did not have jurisdiction to execute the order.  Had they decided to stay in Ecuador that would have ended the matter.  Alas, they decided to return to the United States to attend their daughter’s wedding.  Apparently, no one told them about destination weddings available outside the United States.  For a detailed recitation of the facts see Jay Adkinson’s blog post  here.

What is unstated in the opinion yet, and which is the key to the case, is how did the IRS learn that the Barretts had returned to the United States.  Someone had to pick this up and alert the U.S. Marshals.  It is possible that U.S. Customs picked it up because of a code on their passport which was scanned as they reentered the country but that information does not come out in the opinion.  Interestingly, after being picked up by the Marshal’s office, the Barretts were not incarcerated.  Instead, their passports and international travel documents were taken but they have been allowed to live with relatives in Colorado.

The Magistrate Judge hearing the case adopted the four part test set for in United States v. Mathewson necessary to obtain a writ ne exeat republica or to continue it: (1) a substantial likelihood of success on the merits; (2) irreparable injury; (3) which outweighs the potential harm to the defendants; and (4) that continuation of the writ would not disserve the public interest.  The Barretts put on evidence that their overseas assets had little value by this point and the Magistrate Judge recommended dissolving the writ.  The district court agreed with the applications of the factors from Mathewson but reversed the decision of the Magistrate Judge.  The default judgment obtained against the Barretts established the existence of the liability and satisfied part one of the test.  The District Court found that the public interest in the collection of taxes satisfied part four of the test.  The Barretts’ actions in fleeing the country in the first place, lying on recent financial statements and doing everything possible to avoid paying the taxes suggested that letting them go could result in irreparable injury to the ability of the IRS to collect the tax and the existence of some overseas assets available to the Barretts to satisfy or partially satisfy the liability suggested that the potential harm to the IRS outweighed that to the Barretts.  Although unstated, the order seems to leave in place the existing circumstance that the Barretts could continue staying with friends in Colorado, the federal district from which the writ ne exeat republica was issued.

The easy lesson here for taxpayers in the Barretts situation is not to return to the United States once they have set on this course and particularly where the IRS has gone to the trouble to obtain the writ during your absence.  Had they not returned to the United States, the IRS would have had few, if any, options to apply in collecting this tax.  One thing the Barretts got right that taxpayers should think about if they decide to flee the United States with their assets is not to go to a country with which the United States has a collection provision in the tax treaty.  When I last worked on this issue several years ago those countries were Canada, France, Netherlands, Denmark and Sweden.  Parking assets in one of those countries may prove unsatisfactory if the IRS is really serious about pursuing collection.

Comments

  1. Sonya Miller says:

    Do you have any idea as to why the Barretts weren’t taken into custody? What are the chances that the Barretts will get the writ dissolved on appeal from the District Court?

    • Ms. Miller,

      Mr. Barrett apparently responded to the article in the comments section of the Forbes post we linked. It is an interesting response and may provide some insight into why they were not detained for longer.

    • Charles Barrett says:

      We are in the process of filing the Appeal Pro Se. I have just filed a Pro se motion with the court regarding the courts requirements on the Barretts in order to have their constitutional right of travel restored which will allow Mr. Barrett the opportunity to return to work We supplied evidence that according to Ecuador law the Barretts cannot sell the property until the boundary dispute is settle. We also provided proof we could not access Mrs. Barretts saving account form here social security payment. The Ecuadorian law does not permit a share holder to sell, give away or transfer their interest in a company with out the other share holders permission Nov. 20 2013 Mr Barrett obtained that permission and sold the shares to meet the court demand to repatriate $16,000. The Barretts in their last motion file informed the court they could sell odds and ends as list by the plaintiff and pay almost $4,000. the Barretts proved that false and misleading information was provided to the court by the Plaintiffs key witness in order to obtain the writ. Precedent court cases make it clear that the Writ may not be used as coercion to collect a debt. We are not lawyers and the company Mr. Barrett worked for due to harassment by IRS withdrew its financial support for legal assistance for the Barretts. Hope this helps my email is petrapresident@gmail.com if you want to see evidence r motion or help us contact us. Thank You the Barretts

    • Charles Barrett says:

      The Barretts were taken into custody on August 8 2013, they were not informed a Writ existed until the Marshal met them at the Airport. The Barretts without seeing the Writ voluntarily complied with the Writ by turning over their passports and their travel document. On four different occasions Mr. Barrett had asked the Marshals and the officer of the court to be allowed to make a phone call to obtain legal representation before going before the Judge. This was not allowed. The Barrett’s we detained five days with out due process and with out legal defense. Mr. Barretts employer did retain legal representation for the Barretts but Mrs. Barrett could not be located in the system for 3 days. Mr. Barrett for two. When Mr. Barrett asked the booking person on what charges, she stated they were being detain there were no charges. The accusation the Barretts hide $40,000 is another unfounded accusation by the Plaintiff. The Barretts were not in position of those funds, On July 29 2013 the Barretts personal lawyer had issued a check to an Ecuadorian company. At the time of detention the Barretts did not know the where about of that check.

      • It sounds as though you may qualify for the services of a low income taxpayer clinic. There is a clinic in Denver at University of Denver Law School. I reached out to that clinic and asked if they might be interested in assisting you with this matter. I have not heard back but you might consider reaching out to them directly. This issue is so unusual that it is unlikely a clinic will have faced it before but the clinic might assist you in presenting your case and navigating the procedure issues present. Good luck in presenting your case. Keep us posted on your success.

        • Charles Barrett says:

          I , Charles Barrett. Did my best to set the record straight about some of the facts in regard to our case.

          As Professor Fogg suggested I contacted Denver Federal Tax clinic but they said they had to many cases already .

          A family can feel like a victim if they run out of money for a proper defense. First we were victims of the tax preparer who we were the key witnesses in her hearing. Now in Oct 11 2013 the Magistrate judge Boland recommend the Writ be vacated And allows our attorneys also to file a brief supporting my Pro Se filing to Vacate the Summary Judgement. Then the next thing we know our lawyers filed to with draw as counsel .

          The judge Jackson ruled against taking Magistrate Judge Bolands recommendation January 29. Which was a very low day for our family

          Today my family and I received the best email since oct 11 ruling. The email was from Lauren Bennett offer to help.

          Thank you all for discussing our case.

          Charles Kathleen , Nathaniel and Jonathan Barrett

        • Charles Barrett says:

          Question please. If the IRS files in civil court to get a judgement.,

          1 does IRS then have to follow the rules of the civil court for collection

          2 does the civil court now have jurisdiction over the case ?

          3 so if the IRS is taking 100% of a person social security retirement payment, when the IRS manual states the IRS can only take 15%. Do you file a motion in the civil court hearing your case.

          Thank you

          Charles

  2. Andy Grossman says:

    Reading Charles Barrett’s comment appended to Jay Adkisson’s Forbes blog post suggests the answer to why the Barretts were proceeded against only civilly and not charged with any crime nor held in custody. They were apparently victimized by Teresa Marty, a tax preparer and promoter of fraudulent tax schemes. See a DoJ press release: http://www.justice.gov/tax/txdv10253.htm — much more on Marty can be found with any search engine. If, as he says, Barrett was reimbursing the Government out of his earnings in Ecuador (at a rate of $5,000 a month, he writes), it may also be true that stranding him, unemployed and without funds in the USA does nothing to help the IRS get it’s money back.

    • I agree with Andy’s observation based upon the comments by Mr. Barrett. The fact that the Barretts have been allowed to stay with relatives suggests that they have been working to pay off the liability. I also agree that if they have been making payments with the income earned from working outside the United States it would seem to make sense to allow them to return to continue earning the income to continue the payments. Without knowing more, it is hard to understand why the government would not allow them to do so under the circumstances described by Mr. Barrett. The purpose of the writ ne exeat is to aid in collection. Because I do not know what the government argued, I cannot say that its position was wrong. Based on Mr. Barrett’s comments, I understand his position and agree with Andy’s observations.

    • Charles Barrett says:

      this is very true, We the Barrett were paying $5000 per month we had paid back over $243,000. As o f March 2013 we were paying $6200 per month. We were filing pro se rule 60 a motion to vacate the summary judgment , which the amount alleged owed by the Barrett’s had never been proven due to a Quick assessment. By the actions of the Plaintiff Now the government is not being paid the $6200 per month . the Barrett are on welfare to feed their family of four until Mr. Barrett can regain meaning full employment. The evidence furnish to the court at the October 11, hearing proved the Barretts had left the majority of their assets in the United States giving IRS levy access to them. The Barrett’s even continued to pay their mortgage payment in order to sell their home in the US to satisfy the debt. It was proven that the Barretts left the United States with very little funds on July 2009, with full knowledge if the IRS R O Agent.. it wasn’t until late 2010 that Mr. Barrett was able to get gainful employment. At the Nov. 21, 2013 hearing on the contempt of court it was questioned by the Judge as to the legal service of Barretts.

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