Sounding the clarion about Net tax scams

And if you believe that one, I have an aging bridge in Brooklyn I can offer--for cheap!

Yet incredibly, tax scams are enjoying something of a revival, thanks in no small part to the popularity of the Internet. Making use of the Web, scam artists are suckering increasing numbers of people into forking over real money to buy into phony trust schemes.

For San Francisco tax attorney Robert Sommers, fighting these latter-day snake oil salesmen has become something of a second profession. "It's something I've been focusing on, more as a public service part of my practice," he says.

Sommers gave an interview before boarding a plane for Washington, D.C., where he will testify Thursday before the Senate Finance Committee to update Congress on what's turning into one of the seamier sides of cyberspace.

How does the Internet give tax-scam artists any more of a canvas than they had before?
Well, a traditional trust-scam artist would be akin to a snake oil salesman at a county fair, barking about an elixir that can magically solve your problems. The audience would be those people who physically were standing in front and could hear the message.

And that's been amplified by the Internet.
Yes. The Web has done two things: It's certainly expanded their reach from simply being a matter of geographical distance and how loud they could talk to one of worldwide reach. Number two--and this has been missed by a lot of people--the ability to spam through e-mail plays an incredible part in all of this. So you can create your phony trust-scam Web site and then spam people. It becomes an integral part of their marketing effort, and if they do it well enough and long enough, they can generate a pretty powerful business fairly quickly.

How sophisticated are Web-based tax scams becoming?
The scam itself has been around for over four decades and really hasn't changed much. But it's a pitch that works. The Web sites just look more corporate--it's the look and feel. Even though they say the same everything, underneath, the pitch hasn't changed.

It must be a compelling pitch to get people to play.
Scammers get between $10,000 and $20,000 for these trusts, and they do it by convincing you that what's true is not true: that you won't have to pay your taxes. They've supposedly got this magical box where you can pour your income and out comes this money, tax free. They've got to be very persuasive.

What about the people getting snookered? What's the average profile?
That's a tough one. You've got doctors, dentists, small-business people and independent contractors; they want someone other than a W2 wage earner. It's not that they are picking on people who aren't bright. It's across-the-board.

Is there a common theme?
A lot of these people are predisposed to being greedy or having anti-government views. Also, you find people who have had tax problems before. So they think this is a great way to hide their assets. But once you sign up, you're committed. It's a pyramid scheme.

What are the most common sorts of Internet tax scams people run across?
Well, there's the "pure" trust scam, where the pitch is there is a constitutional right to put your assets in the trust, and that once you do, there's no government jurisdiction over this. That one has been around four decades. Basically, we set up a trust, and then they appoint me as manager. My name never shows up on the records and you're told there's asset protection so that no one can sue you. Also, when you die, they'll tell you, there are no estate taxes either.

Not to blame the victim here, but what happened to the concept of buyer beware? Is there something specific about the Web that causes normally rational people to suspend their common sense?
My take on it is that common sense starts to go after the hundredth Web site starts to say the same thing by all of these so-called experts in tax. It's all a fraud, of course, but it's like watching a very good magician. The difference is that here, you're dealing with words. These guys will quote you a Supreme Court case; it will have nothing to do with trusts, but there'll be all these quotes. They use real words and real concepts but they distort them to make you believe that you're doing something real. It's not. It's just a black box with nothing in it.

Are regulators getting involved late in the game?
When these things get shut off on the front end, it's usually the states going after them. The IRS tends to take its time investigating these things. To the IRS' credit, they have helped out (on state investigations). When they crack down, they usually get the trust-scam artist and everyone who is involved. But again, that often takes a long time.

You've probably seen a lot more of these strange fraud ideas since the Web became part of so many people's daily routine.
My sense is that the Web has unleashed every kind of imaginable fraud--whatever it is--and has also produced an avenue for marketing tax scams. The real key here is spamming. We tend to think spamming is only a privacy issue or a nuisance. But it's much more than that; it's an opportunity to spread fraud throughout the world. Just think how hard it is to find particular Web sites if you don't know about them. But how hard is it to spam someone?