Senate Examines Internet Tax Frauds

April 5 -- The Senate wants to make it clear: If you think setting up your own church will keep you from paying taxes, you had better pray you don't get audited.

The Senate Finance Committee held a hearing today highlighting what it claims is a growing tax evasion problem in the United States: people using or being lured by Internet-based sites offering them apparent tax breaks — including bogus church charters — that turn out to be nothing but scams.

"The number of participants in these tax scams is growing like a weed," committee Chairman Charles Grassley, R-Iowa, said this morning. "The Internet gives these tax con artists the unprecedented ability to reach out to millions of households cheaply and easily."

Aaron Bazar of North Potomac, Md., said he lost $8,000 becoming involved in what turned out to be an illegal pyramid scheme. Bazar said he first got involved in the project after responding to an unsolicited e-mail.

"If somebody wants to steal from people, the Internet is theplace to do it," Bazar told the committee.

Impure Trusts

Grassley added that at the forefront of his concerns are what he says are "old-style scams — such as pure trusts, constitutional trusts … even setting up your own church — that are being put into new bottles and sold."

According to the committee's research, the most common tax-avoidance scams involve setting up "pure trusts" as a means of illegally claiming exemption from tax obligations. But there's a basic problem that scam sites neglect to mention: Citizens are still responsible for taxes on the income they funnel into such trusts.

Still, "pure trust" sites flourish, and often present pages detailing historical claims for their arguments. At times the Web sites try to lure customers by claiming that the very rich are beyond the long arm of the Internal Revenue Service — and that anyone can enjoy tax-free citizenship as a result.

One Web page purporting to explain the history of the "pure trust" system claims it was developed by "ultra-rich banking families such as Rockefeller, Kuhn-Loeb, Morgan, etc.," making it "almost impossible for government to deny you the same protection today."