Internet Scams & Identity Theft

Tax Scams

2008-02-02T20:37:00.000-08:00

Taxpayers are always looking for ways to cut tax bills. Unfortunately, scam operators are always looking for filers who are eager to find tax breaks.

Tax Scams - How to Recognize and Avoid Them
To help the public recognize and avoid abusive tax schemes, the IRS offers an abundance of educational materials. Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as the repayment of taxes owed with penalties and interest. Education is the best way to avoid the pitfalls of these “too good to be true” tax scams.

Con artists work year-round, but every filing season they get a bump in business as thousand of citizens are easy prey for tax-oriented schemes. To entrap taxpayers, some scammers come up with some patently false tax schemes to wheedle personal information and money from unsuspecting filers who think they are complying with tax laws.

Other scammers take real tax breaks, or portions of legal write-offs, and illegally apply them. That's the case with this year's top scam, a collection of questionable claims of the new, and legitimate, refund of federal telephone tax money. This tax break, which most people can easily claim by filling out one line on their individual tax return forms, has sparked a new crop of fraudulent tax applications.

The IRS urges people to avoid these common schemes:

1. Zero Wages. In this scam, new to the Dirty Dozen, a taxpayer attaches to his or her return either a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 that shows zero or little wages or other income. The taxpayer may include a statement indicating the taxpayer is rebutting information submitted to the IRS by the payer.

An explanation on the Form 4852 may cite "statutory language behind IRC 3401 and 3121" or may include some reference to the paying company refusing to issue a corrected Form W-2 for fear of IRS retaliation. The Form 4852 or 1099 is usually attached to a “Zero Return.” (See number four below.)

2. Form 843 Tax Abatement. This scam, also new to the Dirty Dozen, rests on faulty interpretation of the Internal Revenue Code. It involves the filer requesting abatement of previously assessed tax using Form 843. Many using this scam have not previously filed tax returns and the tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses the Form 843 to list reasons for the request. Often, one of the reasons is: "Failed to properly compute and/or calculate IRC Sec 83––Property Transferred in Connection with Performance of Service."

3. Phishing. Phishing is a technique used by identity thieves to acquire personal financial data in order to gain access to the financial accounts of unsuspecting consumers, run up charges on their credit cards or apply for new loans in their names. These Internet-based criminals pose as representatives of a financial institution and send out fictitious e-mail correspondence in an attempt to trick consumers into disclosing private information. Sometimes scammers pose as the IRS itself. In recent months, some taxpayers have received e-mails that appear to come from the IRS. A typical e-mail notifies a taxpayer of an outstanding refund and urges the taxpayer to click on a hyperlink and visit an official-looking Web site. The Web site then solicits a social security and credit card number. In a variation of this scheme, criminals have used e-mail to announce to unsuspecting taxpayers they are “under audit” and could make things right by divulging selected private financial information. Taxpayers should take note: The IRS does not use e-mail to initiate contact with taxpayers about issues related to their accounts. If a taxpayer has any doubt whether a contact from the IRS is authentic, the taxpayer should call 1-800-829-1040 to confirm it.

4. Zero Return. Promoters instruct taxpayers to enter all zeros on their federal income tax filings. In a twist on this scheme, filers enter zero income, report their withholding and then write “nunc pro tunc”–– Latin for “now for then”––on the return. They often also do this with amended returns in the hope the IRS will disregard the original return in which they reported wages and other income.

5. Trust Misuse. For years unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits, and the IRS is actively examining these arrangements. There are currently more than 200 active investigations underway and three dozen injunctions have been obtained against promoters since 2001. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.

6. Frivolous Arguments. Promoters have been known to make the following outlandish claims: the Sixteenth Amendment concerning congressional power to lay and collect income taxes was never ratified; wages are not income; filing a return and paying taxes are merely voluntary; and being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

7. Return Preparer Fraud. Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, “If it sounds too good to be true, it probably is.” And remember, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2005, more than 110 tax return preparers were convicted of tax crimes.

8. Credit Counseling Agencies. Taxpayers should be careful with credit counseling organizations that claim they can fix credit ratings, push debt payment plans or impose high set-up fees or monthly service charges that may add to existing debt. The IRS Tax Exempt and Government Entities Division is in the process of revoking the tax-exempt status of numerous credit counseling organizations that operated under the guise of educating financially distressed consumers with debt problems while charging debtors large fees and providing little or no counseling.

9. Abuse of Charitable Organizations and Deductions. The IRS has observed increased use of tax-exempt organizations to improperly shield income or assets from taxation. This can occur, for example, when a taxpayer moves assets or income to a tax-exempt supporting organization or donor-advised fund but maintains control over the assets or income, thereby obtaining a tax deduction without transferring a commensurate benefit to charity. A “contribution” of a historic facade easement to a tax-exempt conservation organization is another example. In many cases, local historic preservation laws already prohibit alteration of the home’s facade, making the contributed easement superfluous. Even if the facade could be altered, the deduction claimed for the easement contribution may far exceed the easement’s impact on the value of the property.

10. Offshore Transactions. Despite a crackdown by the IRS and state tax agencies, individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes.

11. Employment Tax Evasion. The IRS has seen a number of illegal schemes that instruct employers not to withhold federal income tax or other employment taxes from wages paid to their employees. Such advice is based on an incorrect interpretation of Section 861 and other parts of the tax law and has been refuted in court. Lately, the IRS has seen an increase in activity in the area of “double-dip” parking and medical reimbursement issues. In recent years, the courts have issued injunctions against more than a dozen persons ordering them to stop promoting the scheme. During fiscal 2005, more than 50 individuals were sentenced to an average of 30 months in prison for employment tax evasion. Employer participants can also be held responsible for back payments of employment taxes, plus penalties and interest. It is worth noting that employees who have nothing withheld from their wages are still responsible for payment of their personal taxes.

12. “No Gain” Deduction. Filers attempt to eliminate their entire adjusted gross income (AGI) by deducting it on Schedule A. The filer lists his or her AGI under the Schedule A section labeled “Other Miscellaneous Deductions” and attaches a statement to the return that refers to court documents and includes the words “No Gain Realized.”

Nigerian Email Scams

2008-02-02T20:10:00.000-08:00

The Nigerian Advance Fee Scheme
The Nigerian Advance Fee Scam has been around for quite awhile, but despite many warnings, continues to draw in many victims.

Indications are that the advance fee fraud grosses hundreds of millions of dollars annually and the losses are continuing to escalate.

An advance-fee fraud is a confidence trick in which the target is persuaded to advance relatively small sums of money in the hope of realizing a much larger gain. Among the variations on this type of scam are the Nigerian Letter (419 fraud or Nigerian money offer and the Spanish Prisoner.

History of the Nigerian Scam
The 419 scam originated in the early 1980s as the oil-based economy of Nigeria declined. Several unemployed university students first used this scam as a means of manipulating business visitors interested in shady deals in the Nigerian oil sector before targeting businessmen in the west, and later the wider population. Scammers in the early-to-mid 1990s targeted companies, sending scam messages via letter, fax, or Telex. The spread of email and easy access to email-harvesting software made the cost of sending scam letters through the Internet inexpensive.

Insa Nolte, a lecturer of University of Birmingham's African Studies Department, stated that "The availability of e-mail helped to transform a local form of fraud into one of Nigeria's most important export industries."

Standard Plot of the Scam
This scam usually begins with a letter-form e-mail sent to many target recipients making an offer that will purportedly result in a large payoff for the intended victim. The stories behind the offers vary, but the standard plot is that a person or government entity is in possession of a large amount of money or gold. This person, for myriad reasons, either cannot access the wealth directly or is no longer in need of it. Such people, who are fictional or impersonated characters played by the scammer, could include the wife of a deposed African or Indonesian leader or dictator, a terminally ill wealthy person, a wealthy foreigner who had deposited money in the bank just before dying in a plane crash, leaving no will or known next of kin, a U.S. soldier who has stumbled upon a hidden cache of gold, a business being audited by the government, a disgruntled worker or corrupt government official who has embezzled funds, a refugee, and similar characters. The money could be in the form of gold bullion, gold dust, money in a bank account, so-called "blood diamonds", a series of cheques or bank drafts, and so forth. The sums involved are usually in the millions of dollars, and the investor is promised a large share, often forty percent or more, if they will assist the scam character in retrieving the money from holding and/or dispense of it according to the scam character's wishes. The proposed deal is often presented as a "harmless" white-collar crime, in order to dissuade participants from later contacting the authorities.

Variants of the Nigerian Scam

Fake cheques and cheque cashing scams
Shipping/Receiving Scam with Variant Pet Adoption
Fake Web sites
Invitation to visit the country
Telecommunications Relay Services
Romance angle
Friendship/business partner/wash wash money angle
False escrow
Hitman
Bomb scams
eBay seller scam
False online storefront scam
Lottery scam
Stranded missionary scam
Tutor scams
Bogus Employment Advertisements
Escort scams
Rental scams
Puppy/pet scam
Begging scams
Charity scams
Death in the family scams
Fraud recovery scams
E-mail hijacking/Friend scams

Fake Web sites
Though 419 scams are often perpetrated by e-mail alone, some scammers enhance the believability of their offer through the use of a sham website. Such websites can imitate real sites such as eBay, PayPal or a banking site like Bank Of America for the purposes of phishing, while others are totally fictional and used to lend credibility to a scammer's story. One example is a security e-mail, like from PayPal for example, claiming that an individual has attempted to log into a victim's account, and that immediate action is needed or the account will be terminated. The mail will usually include a hyperlink that is the address for the real website, but is set to open a different address when clicked on. The scammer will count on the victim to click on the hyperlink instead of typing it, which will then re-direct the victim to a fraudulent page. Another good example is that a scammer may create a website for a fictional bank, then give the victim details to login to the site, where the victim then sees the money that the scammer has promised sitting in the account. The victim is then more likely to believe the scammer and send the requested advance payments. Fake websites are the centerpiece of false online storefront scams.

Invitation to visit the country
Sometimes, victims are invited to a country to meet real or fake government officials. Some victims who do travel are instead held for ransom. In some rumored cases they are smuggled into the country without a visa and then threatened into giving up more money, as the penalties for being in a foreign country without a visa are severe.[30] Sometimes victims are ransomed or killed

The Nigerian Advance Fee Scheme involves the receipt of an unsolicited letter purporting to come from someone who claims to work for the Nigerian Central Bank or from the Nigerian government.

(The Central Bank of Nigeria denies all connection to those who promote this scheme.)

In the letter, a Nigerian claiming to be a senior civil servant will inform the recipient that he is seeking a reputable foreign company into whose account he can deposit funds ranging from $10-$60 million which the Nigerian government overpaid on some procurement contract.

The goal of the scam artist is to delude the victim into thinking that he or she has been singled out to participate in a very lucrative -- although questionable -- arrangement. The intended victim is reassured of the authenticity of the arrangement by forged or false documents bearing apparently official Nigerian government letterhead, seals, as well as false letters of credit, payment schedules and bank drafts. The scam artist may even establish the credibility of his contacts, and thereby his influence, by arranging a meeting between the victim and "government officials" in real or fake government offices.

Once the victim becomes confident of the potential success of the deal, something goes wrong. The victim is then pressured or threatened to provide one or more large sums of money to save the venture. For example, an official will demand an up-front bribe or an unforeseen tax or fee to the Nigerian government will have to be paid before the money can be transferred. Each fee paid is described as the very last fee required. The scheme may be stretched out over many months.

Sample of a Nigerian Scam letter a victim may receive:

LAGOS, NIGERIA.

ATTENTION: THE PRESIDENT/CEO

DEAR SIR,

CONFIDENTIAL BUSINESS PROPOSAL

HAVING CONSULTED WITH MY COLLEAGUES AND BASED ON THE INFORMATION GATHERED FROM THE NIGERIAN CHAMBERS OF COMMERCE AND INDUSTRY, I HAVE THE PRIVILEGE TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE SUM OF $47,500,000.00 (FORTY SEVEN MILLION, FIVE HUNDRED THOUSAND UNITED STATES DOLLARS) INTO YOUR ACCOUNTS. THE ABOVE SUM RESULTED FROM AN OVER-INVOICED CONTRACT, EXECUTED COMMISSIONED AND PAID FOR ABOUT FIVE YEARS (5) AGO BY A FOREIGN CONTRACTOR. THIS ACTION WAS HOWEVER INTENTIONAL AND SINCE THEN THE FUND HAS BEEN IN A SUSPENSE ACCOUNT AT THE CENTRAL BANK OF NIGERIA APEX BANK.

WE ARE NOW READY TO TRANSFER THE FUND OVERSEAS AND THAT IS WHERE YOU COME IN. IT IS IMPORTANT TO INFORM YOU THAT AS CIVIL SERVANTS, WE ARE FORBIDDEN TO OPERATE A FOREIGN ACCOUNT; THAT IS WHY WE REQUIRE YOUR ASSISTANCE. THE TOTAL SUM WILL BE SHARED AS FOLLOWS: 70% FOR US, 25% FOR YOU AND 5% FOR LOCAL AND INTERNATIONAL EXPENSES INCIDENT TO THE TRANSFER.

THE TRANSFER IS RISK FREE ON BOTH SIDES. I AM AN ACCOUNTANT WITH THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC). IF YOU FIND THIS PROPOSAL ACCEPTABLE, WE SHALL REQUIRE THE FOLLOWING DOCUMENTS:

(A) YOUR BANKER'S NAME, TELEPHONE, ACCOUNT AND FAX NUMBERS.

(B) YOUR PRIVATE TELEPHONE AND FAX NUMBERS -- FOR CONFIDENTIALITY AND EASY COMMUNICATION.

(C) YOUR LETTER-HEADED PAPER STAMPED AND SIGNED.

ALTERNATIVELY WE WILL FURNISH YOU WITH THE TEXT OF WHAT TO TYPE INTO YOUR LETTER-HEADED PAPER, ALONG WITH A BREAKDOWN EXPLAINING, COMPREHENSIVELY WHAT WE REQUIRE OF YOU. THE BUSINESS WILL TAKE US THIRTY (30) WORKING DAYS TO ACCOMPLISH.

PLEASE REPLY URGENTLY.

BEST REGARDS

What is a Ransomware ? How to Protect Yourself

2008-01-30T08:49:00.000-08:00

Ransomware PC Hijacking?

Ransomware is a type of malware used for data kidnapping, an exploit in which the attacker encrypts the victim's data and demands payment for the decryption key. A ransomware program can be installed from an e-mail attachment, an infected program, or a compromised or malicious Web site. Data kidnapping is not new, but has in the past usually targeted businesses rather than individuals. Malware used for this purpose is sometimes called a cryptovirus, cryptotrojan or cryptoworm.

"Scammer demands payment in exchange for the decryption key"

Laymans Terms
Ransomware involves the use of malicious code to hijack user files, encrypt them and then demand payment in exchange for the decryption key. The good news is that documented attacks have been rare. The bad news is that cases are on the rise.

Ransomware History Ransomware is said to have originated in Russia, It and other cyberextortion methods, such as DoS extortion, are becoming more common around the world. To protect against data kidnapping -- and many other online crimes -- experts urge that users back up data regularly, practice cautious browsing and refrain from opening unexpected e-mail attachments

Cyber Scams

2008-01-30T07:03:00.000-08:00

Protect yourself from Internet and other scams

Welcome to the #1 website dedicated to helping you protect yourself from clever scams online. Here You'll find lots of great resources on how to avoid the most popular scams, identity theft threats and viruses making the rounds.

What are the best ways to protect yourself against getting scammed online?

Federal Bureau of Investigation Internet Fraud
Internet auction fraud was by far the most reported offense, comprising 44.9% of referred complaints. Non-delivered merchandise and/or payment accounted for 19.0% of complaints. Check fraud made up 4.9% of complaints. Credit/debit card fraud, computer fraud, confidence fraud, and financial institutions fraud round out the top seven categories of complaints referred to law enforcement during the year.

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