WASHINGTON – Credit counseling agencies that do not comply with the law, have been put on notice. The Internal Revenue Service has released a report on tax-exempt credit counseling agencies and announced it plans to take further steps to make sure these organizations comply with the law.
Over the past two years, the IRS has been auditing 63 credit counseling agencies that represent more than half of the revenue in the industry. So far, the IRS has completed audits of 41 of the agencies, and all of the audits have resulted in revocation, proposed revocation or other termination of tax-exempt status.
According to the IRS, the revocations result from these organizations failing to provide the level of public benefit required to qualify for tax-exemption. The federal agency says "many of the credit counseling agencies offered little or no counseling or education and appeared to be primarily motivated by profit. In many instances, these agencies also served the private interests of related for-profit businesses, officers and directors."
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IRS Commissioner Mark Everson said, "Over a period of years, tax-exempt credit counseling became a big business dominated by bad actors. Our examinations substantiated that these organizations have not been operating for the public good and don't deserve tax-exempt status. They have poisoned an entire sector of the charitable community."
Based on the findings of its examinations, the IRS is taking two additional steps to monitor credit counseling agencies:
*issuing expanded guidance, including legal standards for exemption and factors considered by the IRS in its reviews of these organizations; and
*sending compliance inquiries to each of the remaining 740 known tax-exempt credit counseling agencies not already under audit by the IRS. Depending on the responses it receives, the IRS may undertake additional audits.
In addition, the IRS has tightened its review of new applications by credit counseling firms for tax-exempt status. According to the agency, since 2003, about 100 applications have been reviewed, but only three have been approved.
Everson said the IRS is "taking the unprecedented step of contacting every known organization in the tax-exempt credit counseling world to determine if there are further problems. And we are issuing guidance to assist those smaller organizations who do play it straight and want to continue to stay on the right side of the law."
The IRS said its focus on tax-exempt credit counseling organizations "is part of the agency's strategic goal to deter abuse within the tax-exempt sector."
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