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Tax refund theft bites Michigan dentists and doctors

Brian J. O'Connor
Detroit News Finance Editor

Tax scammers are taking a bite out of refunds that should be going to Michigan dentists and doctors.

For the second year in a row, the cases involve tax identity thieves who somehow grab Social Security numbers and other personal information and then rush to file a bogus tax return and claim a refund. Since 2012, the Internal Revenue Service has reported complaints from Americans of all occupations involving approximately 1.47 million returns with more $6.8 billion in stolen phony refunds claimed.

While IRS representatives say they don’t see doctors and dentists being specifically targeted, Metro Detroit tax preparers say it’s common.

One White Lake dentist learned that he’d been victimized when his accountant tried to file the dentist’s return three weeks ago. Instead of accepting the online filing, IRS computers rejected the return, saying another one bearing the same Social Security number had already been processed.

“I spent a good hour-plus last Friday getting a hold of the IRS and figuring out what I had to do,” said James Bedore.

What he — and other victims of tax ID theft — will need to do is first file a two-page affidavit that his identity has been breached. He’ll be issued a special personal identification number and then will need to refile a paper return with all supporting documents and the new PIN code.

“Now comes the part of getting back together with the CPA,” he said. “All that stuff needs to be scanned and printed and collated. I don’t know how much time it will take, but it’s frustrating because it’s unnecessary busy work.”

During last year’s tax-filing season, the Michigan Dental Association fielded 350 complaints of tax identity theft from its members and alerted others in the membership to the scams. State medical associations reported similar waves of tax ID theft in Indiana, Massachusetts, Maine, New Hampshire, South Dakota, Iowa, North Carolina, Colorado, Connecticut and Vermont.

Some medical groups suspected the physicians’ identifying information had been lifted from a publicly issued government Medicare report, but that didn’t include Social Security numbers, according to reports. Other investigators suspected a data breach at a national health care insurer. Whatever the source, more doctors and dentists have continued to be victimized, likely because their higher incomes make them a more lucrative target.

“Most of our clients who are dentists, I’d say 75 percent of them, have had fraud problems,” said Jim McIntyre, a partner with the accounting firm Fenner, Melstrom & Dooling in Birmingham.

“Two years ago, it was just a few of them, and now it seems that most of the dentists have fraud issues. I just had a doctor last week where we filed his return and the IRS bounced it back,” McIntyre added. “I’ve got clients who are just pulling their hair out.”

They’re not alone. On Thursday, IRS Commissioner John Koskinen met with leading tax-preparation firms, payroll and tax refund processors and state tax administrators to discuss refund fraud, which cost the agency $5.8 billion in bad refunds during 2013.

At a press briefing, Koskinen raised the possibility of requiring employers to file W-2 information on wages and withholding for their workers earlier in the year. Right now, the IRS doesn’t get that information until late in the filing season, making it difficult for the agency to check the income claims against fraudulent returns filed early in the year.

Koskinen also mentioned the possibility of delaying refunds. Right now, a taxpayer who files electronically and has a refund directly deposited to a bank account or prepaid debit card can get the money in as little as a week. A February survey from tax preparer H&R Block found that 58 percent of taxpayers would wait a little longer for their refund to help combat refund fraud, with the majority willing to wait an additional three weeks or more.

One remedy that Koskinen ruled out is ending the practice of electronically depositing refunds to prepaid debit cards, which are available to low-income taxpayers and those without bank accounts. But such cards often are used by scam artists who don’t want investigators to track a fraudulent refund back to a bank or address, noted JoAnne McLean, a special agent and public information officer for the IRS criminal investigations unit.

“If you have multiple checks going to an address or you have multiple direct deposits going to one checking account, that’s going to set off red flags,” McLean said.

Following up on red flags and other evidence, the IRS criminal unit investigated 1,063 identity theft cases during the 2014 fiscal year and convicted 748 people, up from 438 the year before. One case was that of Shane Bateman, who was sentenced to one year and a day in prison for obtaining $185,828 in fraudulent refunds paid to Turbo Tax Visa debit cards. Bateman filed 180 false tax returns requesting a total of $1.7 million in refunds.

Another busted scam artist is set to be sentenced April 22. Tiffiny Coleman, a Detroit tax preparer who conspired to file about 100 returns that brought in $482,977 in refunds, faces 10 years and a fine of $250,000, plus restitution.

While taxpayers will get their refunds after untangling their taxes with the IRS, accountants and tax preparers note that they also are victims.

“Who’s going to pay for this?” asked McIntyre. “Our blood pressure is up because we don’t want to bill the client, and then the client is confused, so we’re going to have to eat it. If you’re doing an individual return and charging the bare minimum, you have to think, ‘I’m losing money on this job.’ It’s a pain in the rear.”

The IRS doesn’t have figures for the current tax filing season, but from 2011 through October 2014, the IRS says it has stopped 19 million suspicious returns and more than $63 billion in fraudulent refunds. But others, such as Bedore, file their tax returns only to find that an ID crook already used their Social Security number.

Once he files his ID theft affidavit and his accountant reconstructs his paper return, Bedore will have to wait two months for the IRS to process his return and make sure there are no problems. The only good thing is that at least the dentist knows he won’t be owing any tax.

Said Bedore: “I will be getting a refund — eventually.”

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