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IRS Revokes Tax-Exempt Status of Four Credit Counseling Agencies

July 17, 2005

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The Internal Revenue Service has revoked the tax-exempt status of four credit counseling groups and is continuing its investigation of several others accused of abusing their tax-exempt status, a senior IRS attorney said. She did not identify the organizations affected.

Credit Counseling • FTC Charges Home Buying Operation With Credit Repair Scheme • FTC Charges Express Consolidation Misleads Consumers • Debt Free Agrees to West Virginia Refunds • Ohio Sues "Credit Counselor" For Deceiving, Threatening Consumers • Debt Management Telemarketers Settle FTC Charges • FTC Shuts Down 20 "Credit Repair" Schemes • FTC Sues "Debt Elimination" Programs • AmeriDebt Founder Settles FTC Charges for $35 Million • IRS Plans to Yank Tax-Exempt Status of 20 Credit Counselors • IRS Revokes Tax-Exempt Status of Four Credit Counseling Agencies • Three Debt Management Firms Settle Federal Charges • AmeriDebt To Close as Part of FTC Settlement • Credit Counseling Riddled With Fast-Buck Promoters, Congress Finds • Credit Counselors Not Always What They Seem • Credit Counseling Scams On the Rise • Lenders Ratchet Down Payments to Credit Counselors --- • More about Credit Counseling

IRS attorney Debra Kawecki addressed members of the Association of Independent Consumer Credit Counseling Agencies, which held its annual meeting in Washington last week.

According to the IRS Web site, A Better Way Credit Counseling of Greenacres, Fla., and the National Center for Debt Elimination of North Huntingdon, Pa., no longer qualify to receive tax-deductible contributions, the Baltimore Sun reported. AmeriDebt, once a major credit counseling agency, is being liquidated in bankruptcy court and its founder, Andris Pukke, is being sued for $172 million by the Federal Trade Commission.

Kawecki was challenged by a lawyer who represents credit counseling firms. David Borinsky said the IRS should issue rules to give the agencies more guidance.

But Kawecki shot back that credit counseling is not rocket science and said rules weren't needed. "It's basic bread-and-butter tax-exempt law ... You help people, you don't hurt people," she said, according to The Washington Post.

Credit counseling became a growth industry in the 1990s, as scores of supposedly not-for-profit organizations were created, each claiming to help consumers manage their debt. But consumers and investigators say many of the agencies charged high fees, funneled money to for-profit affiliates and didn't provide the consumer education they promised.

The crackdown has taken on added urgency because of the new bankruptcy law which goes into effect in October. It requires that consumers undergo credit counseling with a government-approved not-for-profit before filing for bankruptcy.

The IRS has reportedly received about 40 applications from agencies hoping to qualify for tax-exempt status and so far has notified about half that they don't appear to qualify, a senior IRS attorney told a conference of credit counseling organizations.

Consumer advocates have criticized the IRS for being too lenient in granting tax-exempt status to credit counselors.

In April, IRS Commissioner Mark W. Everson told a Senate committee that the IRS identified 60 credit counselors for examination. He added that the IRS revoked or proposed to revoke the tax-exempt status of counselors representing more than 20 percent of the industry's gross receipts.

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