Tax Law Center Blog

For tax professionals representing clients in the medical field, the recent conviction of Dr. Pankaj Merchia serves as a reminder of the IRS’s reach. Last month, on January 27, 2026, a federal jury convicted the Brookline physician on multiple counts, including health care fraud, money laundering, and, perhaps most critically for our practice, tax evasion and conspiracy to defraud the United States under 18 U.S.C. § 371.

The case demonstrates that while health care fraud may initiate an investigation, it is often the subsequent attempt to conceal proceeds and manipulate business ownership that leads to the most severe federal tax charges, because it is easier to prove tax violations.

The Anatomy of the Tax Conspiracy

The government’s case against Dr. Merchia highlighted a decade-long effort to shield over $6.5 million in income from the IRS. The scheme utilized several “red flag” techniques that practitioners should be prepared to identify:

• The Sham Business Transfer: To distance himself from taxable income, Merchia claimed to have sold his medical businesses in 2008. The government successfully argued this was a “sham transaction” (a legal fiction created solely to facilitate tax avoidance).
• Fabricated Amortization Deductions: To ensure his co-conspirator did not bear the tax burden of the “acquired” businesses, the parties claimed massive, multi-year amortization deductions based on the inflated or non-existent purchase price of the entities.
• Concealment of Beneficial Ownership: Despite the purported sale, Merchia maintained control over the income, eventually using the proceeds for personal enrichment, including the purchase of luxury real estate and securities.

The High Stakes of IRS-CI Involvement

IRS Criminal Investigation (IRS-CI) is the only agency with jurisdiction over violations of the Internal Revenue Code. With a conviction rate of approximately 90%, their involvement transforms a civil audit risk into a potential 10-year prison sentence.

In this case, the government utilized 26 U.S.C. § 7201 (Tax Evasion) and 18 U.S.C. § 1956 (Money Laundering) to bridge the gap between the fraudulent billing of insurance companies and the subsequent failure to report those “ill-gotten gains” as taxable income.

Critical Takeaways for Tax Professionals

This conviction underscores the importance of rigorous due diligence when documenting business successions and inter-company transfers. When the government investigates health care violations, it will often pursue a superseding indictment that includes criminal tax charges alongside substantive fraud counts.