Physicians Targeted by Income Tax Fraud Scheme

September 21, 2014
Martin Merritt

Physicians in Texas and nationwide are the focus of an income tax fraud scheme. Here's what you need to know to protect yourself and your finances.

It is tax season for those of us who file for an extension allowing us until Oct. 15 to file our income tax returns. It is also a good time to raise awareness of a growing national tax fraud scheme targeting physicians.

Medical societies across the country have reported higher-than-normal rates of healthcare professionals being targeted in a tax fraud scheme involving phony tax returns. Reporter Kara Nuzback, writing for the Texas Medical Association reports on a Dallas plastic surgeon who first learned she had been targeted when the IRS contacted her, requesting more information regarding a tax return she never filed. Another Texas physician, according to the report, was shocked to find the IRS would not accept his electronically filed return, because someone had already filed a return using his Social Security number. As of June, more than 100 Texas physicians have been caught up in the scheme, which is similar to reports from medical societies in 49 states.

Brian Krebs, a former Washington Post reporter suspects   the crimes may have been prompted by a data breach at some type of national organization that certifies or provides credentials for physicians. Others wonder whether the increase in physician targeting could be related to CMS' mystifying decision to release data identifying by name and location, physicians who were paid the most money by CMS. If true, this would add fuel to the frustration I reported in April at the time of the CMS release.

 According to Krebs, thieves steal or purchase Social Security numbers and other data on consumers, and then electronically file fraudulent tax returns claiming a large refund. The thieves instruct the IRS to send the refund to a bank account that is tied to a prepaid debit card, which the fraudster can then use to withdraw cash at an ATM.

The AMA offers suggestions for physicians affected by the scam:

• File a paper return, and attach a Form 14039 Identity Theft Affidavit to explain what happened. 

• Attach copies of the 5071C letter and any other notices from the IRS to your tax return. If you have not received notice from the IRS, but believe your personal information may have been used fraudulently, call the IRS Identity Protection Specialized Unit at (800) 908-4490.

The North Carolina Medical Society (NCMS) suggests contacting the following agencies if you learn your Social Security number has been used fraudulently:

• File a complaint with the Federal Trade Commission (FTC) on its website

• File a local police report.

• Call the Social Security Administration's (SSA's) fraud hotline at (800) 269-0271 to report fraudulent use of your Social Security number or use the SSA website.

• Consult the U.S. Department of Justice website for additional information on fraud and identity theft.

The IRS is required to bear the loss, not the physician. Nevertheless, one of the more simple solutions for next year's tax return is to file early, thus beating the criminals to the punch.