Exempt Organizations Advisory - IRS Takes Action Against Credit Counseling Organizations

Yesterday, the IRS announced that it has canceled the tax-exempt status for several credit counseling agencies after audits revealed that they existed mainly to target debt-ridden customers. The IRS stated that it conducted a two-year investigation of 41 credit counseling agencies which resulted in the revocation, proposed revocation or other termination of their 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. Many of these agencies offered little or no counseling or education and appeared to be primarily motivated by profit."

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."

Additional information can be accessed here.

For more information on this topic, please contact  Catherine W. Wilkinson, Suzanne Ross McDowell, or the Steptoe attorney(s) with whom you usually work.

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.