IRS Revokes Exempt Status for Credit
Counseling Agencies
On May 15, 2005, the IRS announced the
revocation of tax-exempt status from numerous credit counseling
agencies. In all, 63 cases have been examined, representing 56%
of credit counseling industry revenues. While some audits have
not been completed, all 41 audits that have been completed have
resulted in final or proposed revocations. These revocations
account for 41% of total industry revenue from debt management
plans. Chief Counsel Mark Everson released the figures as a part
of the ongoing credit counseling compliance project.
In all, 9 final revocations or terminations
have been issued, and another 32 proposed revocations have been
announced. No credit counseling organization that has been
audited has succeeded in preserving their exempt status. This is
not a surprise since the IRS intentionally targeted those
companies which appeared to be relying on revenue from debt
management plans (DMPs) the most. Some organizations that are
under audit are expected to maintain their tax-exempt status,
although none have so far.
The IRS is also in the process of
collecting surveys from 743 nonprofit credit counseling agencies
as a part of their compliance checks. The intent is to determine
if any additional agencies should be audited as well.
New applications are undergoing increased
scrutiny. 110 new applications have been filed in the three
years since 2003 by organizations seeking tax-exempt status
under § 501(c)(3). Of these, 37 applications were denied and 58
were abandoned by the applicant. Only 3 applications were
approved. Since this report, we are happy to announce that the
IRS
approved the tax-exempt application for Vision Credit
Education.
Approximately 8 states require that an agency
maintain tax-exempt status to operate within their state. As a
result, many companies are operating as for-profit entities
within the remaining states. It is up to consumers to find a
reputable credit counseling agency that will provide thorough
counseling, objective advice and substantial opportunities for
financial education. Sometimes the best option is to search for
a local agency through the Better Business Bureau. There is no
guarantee that these agencies are free from problems, but you
should ensure that the agency you contact has a satisfactory
rating. If you are uncomfortable with their fees or their
approach, seek help with a different agency.
© 2004-2010 Vision Credit Education, Inc. All rights reserved.
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