Nationwide scam targeting doctors and others hits Montana

2014-05-02T00:15:00Z 2014-05-02T16:14:09Z Nationwide scam targeting doctors and others hits MontanaBy NICK BALATSOS nbalatsos@billingsgazette.com The Billings Gazette

James King, a former physician living in Billings, did what he was supposed to this tax season. His only regret is that he didn't do it earlier.

By the time he filed his taxes, his identity had already been stolen. 

Using King's name, Social Security number and listing him as a spouse, somebody beat him to filing his own taxes — and as a consequence, his return was rejected, he said.

King, who retired from Billings Clinic three years ago, doesn't appear to be alone.

A growing number of physicians and other professionals in the state, as well as across the country, have reported being victimized by what appears to be the same scam.

A mystery

It is unknown at this point who the scammers are or how they got hold of the information, but initial speculation from experts seems to point to a data breach.

Just last week, the Montana Medical Association sent out an email warning physicians. 

"The MMA has received a report from a Montana physician and notices from other state medical societies about an IRS tax scam directed at physicians and other health care professionals," it read.

"According to the reports, someone is filing fraudulent federal income tax returns using physician names, addresses and Social Security numbers. IRS officials believe this scam is an attempt to fraudulently recover tax refunds."

It went on to say that "at least one Montana physician has experienced this recently" and that "other victims received tax refunds without having filed."

That email was sent out Monday, April 21. By Friday of that same week, as many as 15 doctors had called in, MMA Executive Vice President Jean Branscum said.

Branscum said it's a mixed group of people being targeted, but they predominantly are in the medical field. 

She added that in some instances she has heard of multiple physicians being listed on the same tax return as a spouse even when they're not.

Hard to stop

Identity theft is one of the fastest-growing crimes nationwide, according to the IRS. It's also one of the service's biggest challenges. 

In 2013, the IRS initiated 1,492 identity-theft-related criminal investigations, an increase of 66 percent from 2012.

The IRS says it has been "continuously" working to improve the identity-theft filters used to identify potentially fraudulent returns.

Kevin Heaney, a Billings attorney specializing in business and commercial law at Crowley Fleck PLLP, where he's also a partner, has clients that include medical facilities, banks and other professional organizations.

Clients started approaching Heaney about the fraud roughly three weeks ago. Since then he has heard from one or two additional clients a day, all reportedly victims of the scam, he said.

Many are contacting him to ensure that their information is secure in the future, and many are looking to be reassured that they've done all that they can.

He said he has been advising them to, among other things, use a company that specializes in credit monitoring.

But he said, as far as he can tell, the fraud seems to be limited in nature to filing fraudulent taxes, as other forms of identity theft require more information. 

Entities like banks, he said, have a more robust security infrastructure.

He said that although this type of tax fraud is common, "the size, scope and magnitude" of this is what makes it noteworthy.

Reports of this type of fraud have popped up in at least eight other states: Arizona, Connecticut, Indiana, Maine, Michigan, North Carolina, Vermont and New Hampshire.

Weakness in the system

On April 23, U.S. Sen. Jeanne Shaheen, D-N.H., wrote a letter to the Secret Service and IRS urging an investigation.

In that letter, she cites the New Hampshire Medical Society, stating that "more than 100 physicians, physician assistants, dentists and nurse practitioners in New Hampshire" have fallen victim to the scam. 

At this point, it seems the number of Montana health care professionals affected pales in comparison.

Heaney said the scammers use the doctors' social security numbers, names, addresses and dates of birth and then populate the rest of the form with fabricated information.

He said that since the IRS expedites the refunds by issuing them before validating W2s, they are able to get away with it.

A potential solution could be waiting to validate information before issuing a refund, but that could mean a few extra months before a refund is issued, he said.

Ron Yates, a CPA and partner at Eide Bailly in Billings, agreed that this seems to be the price we pay for convenience, as the scam is "probably exposing a weakness" within the e-filing system, he said.

That system was established in 1990. More than one billion taxpayers have used it since, the IRS says. Before e-filing, receiving a tax refund could take weeks if not months. Now, with the added convenience of direct deposit, it's just a matter of days.

Although e-filing didn't cause the scam, and the majority of taxpayers who have used it have never had a problem, Yates said scammers may have exploited its weakness.

"It takes the IRS a long time to to file millions of tax returns. E-filing has made it easier," Yates said, but because the majority of people are e-filing, he added, there is an increased risk for fraud, as the IRS simply doesn't have enough time to cross-reference the information. 

Although a pain, fixing the problem is relatively straightforward. It involves filing a special form with the IRS, and then waiting.

The victim is then given a unique pin number, called an Identity Protection Pin, or IP Pin. The IRS uses the pin to make sure the taxpayer is the rightful filer of the return.

The number of these pins being issued each year is increasing, doubling in 2012 and again in 2013, according to the IRS.

Yates said the IRS is doing more to prevent these types of fraud, but said it's a system "in transition." 

Since 2011, the IRS has stopped 15 million suspicious returns and protected more than $50 billion in fraudulent refunds. 

The IRS is sending 5071C letters to suspected fraud victims with instructions to contact the IRS identity theft website or call the IRS at 800-908-4490.

Deb Matus, the director of memo services at Montana Medical Association, said it plans to bring up the issue during the next legislative session.

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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