IRS targets nonprofit counselors of credit

• Article
• Comments ()
• Click-2-Listen
• Videos

By

The Internal Revenue Service is warning nonprofit credit-counseling agencies to stop trying to make money off their clients or face being shut down by the government.

"If you're not upfront with us, we're going to find out," Steve Grodnitzky, an IRS exempt-organization manager, said during a meeting of the National Foundation for Credit Counseling at a downtown hotel this week.

Credit-counseling agencies operate as nonprofit organizations to help consumers overcome debt by managing their money better.

Last week, the IRS said it revoked or proposed revoking the tax-exempt status of 41 of the nation's largest credit-counseling agencies. Another 22 are being investigated.

Together, they earn more than 41 percent of the credit-counseling industry's $1 billion a year in revenue.

Further investigations of credit-counseling agencies soon will follow, Mr. Grodnitzky said.

"We have seen a lot of abusive organizations," he told about 100 credit-counseling industry representatives.

The IRS says the groups are claiming to be nonprofit organizations, but are selling clients debt-management programs that they must pay for on a monthly basis, usually at the rate of $15 to $25 a month.

In exchange, the agencies agree to negotiate with the clients' creditors for lower interest rates and no late fees on their debt.

In many cases, the debt-management programs merely add to the clients' debt, according to the IRS.