May, 2001 Hot Topics - part 2 of a 2-part series

4         Tax Scams and the Internet

            An internet search for the terms “pure trust” will produce dozens of unique websites advertising these schemes.  Some websites have existed for years.  The sheer volume of such websites touting the pure trust lends legitimacy to the concept.  After reading several of these sites, the average citizen could— and may—believe there is truth in their claims.

             A typical trust-scam artist uses the pitch, “If this were illegal, don’t you think the government would arrest me?  They haven’t, therefore, what I’m telling you must be legal.”

             In addition to creating an atmosphere of legitimacy, the web allows, by sheer numbers, the trust-scam artist to reach a worldwide audience.  Similar schemes are cropping up in Australia and Canada, with a scope extending to other countries.  Because each trust scam is designed to extract a huge fee before any bogus documents are even produced, unless the government moves quickly to shut down these scams, the damage is done to unsuspecting consumers long before any tax returns are filed or audited.  Often there are no tax returns filed, so large sums of wealth are slipping below the government’s radar screen.

             Since trust scam operations rely on keeping one step ahead of the IRS, a sham trust promoter might use the other tax fraud websites as a resource to update and fine-tune his swindle.  For instance, the “foreign jurisdiction” argument is being refined and used in a variety of illegal contexts because of its prevalence on the web.  A trust scammer can now point to the number of tax “experts” on the web saying essentially the same thing he is touting, another technique to buttress his scam’s legitimacy.

             Finally, the e-mail portion of the web is vital to the trust promoters since is allows them to spam (send thousands of unwanted e-mails touting their trust fraud) for free.  It is the combination of having a website and the use of spam that makes the web such an effective marketing tool for trust scammers.

5         Measures to Prevent the Proliferation of Trust Scams on the Web

5.1        Create A Strike Force

            First, the IRS needs a federal strike-force committed to consistently monitoring the websites and activities of trust-scam artists.  One to two employees should be searching for new trust scams on the web first thing each and every morning.  At midmorning, they should report the new activities, and by noon there should be a meeting to decide whether a suspicious website promotes tax fraud.  The decision should be made by early afternoon.

             If a website is promoting tax fraud, immediate action must be taken. I cannot emphasize this enough. The entire website should be downloaded and preserved as evidence.  Once this is accomplished, the person or company who manages the webside (usually known as the webmaster) and the ISP (the internet service provider) should be notified and given a set time, say 12 hours, to remove the website. 

             Within the strike force, several attorneys experienced in these matters would be authorized to appear in federal court to stop the sites.  An attorney should be notified when the notice to cease and desist has gone to the web site.  If the site is not down within the prescribed time, legal proceedings should commence immediately.

             The strike force should also report to other government agencies combating fraud i.e. SEC, FDA, so that a coordinated crackdown on fraud can be imitated.

             Finally, the strike force should be monitoring e-mail spamming by trust scam artists.  This is easily done because several groups follow and report on Internet spamming.  A two-pronged approach aimed at finding trust scam websites and those touting their trust frauds through spamming, would be extremely effective in stopping this activity.

5.2       Resource Center - Fight Propaganda with Education

            IRS must provide a comprehensive web-based resource center involving trust scams.  Every court case should be categorized and listed with links to the actual case.  Every DOJ and IRS press release should be posted at the website as well.  Also, legal briefs and arguments used in court cases against these groups should be available. The website should contain an e-mail subscription list and a newsletter discussing current trust scams matters.  These should be sent to the press and others who request them.

             A crucial element of the IRS website should be a list of suspect websites along with links to actions taken against the site (press releases, legal proceedings).  A list of trust scam spammers should also be maintained.

             Instructional materials, such as “How to Spot an Illegal Trust,” “New Scams: How They Work and Why They are Illegal,” should be essential parts of the web site.  Links to other news stories and publications should be provided as well.

             The website should be designed and promoted in the same manner as the IRS’s recent website devoted to Small Businesses (http://www.irs.ustreas.gov/smallbiz/index.htm ) which could be used as a model.  Links to the trust scam resource center should appear on the home pages of each IRS website.  Instructions to the Form 1040 should contain a paragraph stating that using trusts to avoid income taxes is illegal. 

5.3       IRS Needs a Public Relations Offensive

            IRS spokespersons need to counter the trust scam artists whenever they appear in any media.  The IRS approach needs to be simple and direct:  These scams do not work, they are illegal and IRS will come after you if you use them. IRS should avoid arguments as to the scammer’s philosophy or logic.  Taxpayers are impressed by results – IRS does not accept these arguments – rather than philosophical debates.

             Another aspect of the PR offensive should be targeted articles and advertisements in industry-specific publications.  For instance, if a doctor or dentist is convicted of a trust scam crime, an article should appear in the professional publications (American Medical Association or American Dental Association) monthly magazines warning these professionals not to engage in this conduct.  In other words, IRS needs to leverage its court victories by making sure those within the same profession or industry get the message.  IRS might speak at annual conventions or have a booth at trade shows, dealing with trust scams within the profession.

             A PR offensive should be directed at the trustees of these trusts since the trustees could be a family friend or relative who is unaware of the serious risk he or she is taking by acting as a trustee of the fraudulent trust.  This can be accomplished through general business and finance television programs, magazines and newspaper stories. 

6         Conclusion

            Trust scams have existed for more than four decades.  Recently, they have moved from the realm of the snakeoil salesman to the world-wide reach of the Web.  This is a growing problem, both from a consumer protection and revenue loss viewpoint.  The mere existence of these websites reinforces the legitimacy of the trust scammer’s claims and undermines the confidence of honest taxpayers in the system.

             IRS has the tools to combat this problem before it spirals further out of control.  A simple three-pronged approach is feasible: (1) the identification of these websites and the swift action to shut them down (2) the design of a comprehensive resource center composed of information pertaining to trust scams; and (3) a concentrated PR effort in the media, including IRS spokespersons confronting trust scammers in the media.

             If IRS considers the cost of audit and collections personnel chasing down trust scams once they have entered the tax system, eliminating these websites at the earliest moment becomes cost-effective as well.

 Recommended Anti-Fraud Websites

Quatloos, (http://www.quatloos.com/ ) by Jay D. Adkisson - the leader in using the Web to expose tax and financial scams and frauds.

Why You Shouldn’t “Trust” Trust Educational Services (formerly National Trust Services)(http://pweb.netcom.com/~rogermw/nts.html) by Roger M. Wilcox. who claims he got burned by National Trust Services ("NTS") to the tune of $9,500 for a worthless trust.  An excellent analysis and critique of the trust scam business from the victim’s perspective.

The Tax Protestors FAQ (http://evans-legal.com/dan/tpfaq.shtml#liable) by Daniel B. Evans.  Mr. Evans has taken the time and trouble of refuting dozens of tax protestor arguments by providing case law citations.  An invaluable resource for those dealing with these arguments.

The Tax Protestor Hall of Fame (http://www.geocities.com/CapitolHill/2278/)  a list of cases with descriptions dealing with tax-protestor arguments.

The Militia Watch Dog Website, “Trusts and the Untrustworthy, Pure Trusts and the Patriots for Profit” (http://www.militia-watchdog.org/puretrust.htm).  Mark Pitcavage, Ph.D., describes the historical development of the “pure trust” and the involvement by militia groups.