- The Washington Times - Monday, May 15, 2006

ASSOCIATED PRESS

The Internal Revenue Service has canceled the tax-exempt status of some of the nation’s largest credit counseling services after audits showed they exist mainly to prey on debt-ridden customers, IRS Commissioner Mark Everson said yesterday.

“These organizations have not been operating for the public good and don’t deserve tax-exempt status,” Mr. Everson said. “They have poisoned an entire sector of the charitable community.”

A two-year investigation of 41 credit counseling agencies resulted in the revocation, proposed revocation or other termination of their tax-exempt status, he said.

The IRS did not identify the organizations. But its Web site listed several consumer counseling services whose tax-exempt status has been revoked.

The most recent additions to the list were Ameratrust Inc. of Delray Beach, Fla., added to the list May 1, and Consumer Guidance Corp. of Sun Valley, Calif., added to the list April 17.

The IRS would not comment on whether those were two of the 41. Representatives of those companies could not be reached for comment.

Mr. Everson said the 41 agencies reaped 40 percent of the revenue in a $1 billion industry. Many offered little, if any, counseling or education as required of groups with tax-exempt status, he said, adding that the IRS is following up the revocations with some criminal investigations.

The IRS also is sending compliance inquiries to each of the other 740 known tax-exempt credit counseling agencies not already under audit, requiring them to report on their activities.

“Depending on the responses received, additional audits may be undertaken,” the agency said.

In addition, the IRS is issuing new guidance on how to comply with federal law to legitimate organizations that educate people on how to maintain good credit.

According to Mr. Everson, groups looking to make a profit would secure tax-exempt status and make cold calls to people in desperate financial position. They would use scare tactics to sell the people “cookie-cutter” debt management plans often not geared toward reducing the consumers’ debt and often too costly for them. Administrative fees, he said, were sometimes collected by third parties handling the paperwork for a profit.

The IRS crackdown is occurring at a time when consumers and the counseling services are having to live under a new, more restrictive federal bankruptcy law.

Congress last year gave the financial counseling sector a new role in bankruptcies by requiring consumers to consult with an approved credit counselor before they seek the protection of a bankruptcy court.


Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide