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NY Times
Published: May 16, 2006
WASHINGTON, May 15 (AP) - The Internal Revenue Service has canceled
tax-exempt status for some of the nation's largest educational credit
counseling services after audits revealed they exist mainly to prey on
debt-ridden customers, Commissioner Mark W. Everson said Monday.
A two-year investigation of 41 credit counseling agencies resulted in the
revocation, proposed revocation or other termination of their tax-exempt
status, he announced.
Mr. Everson said that many of those groups, representing more than 40
percent of the revenue in a $1 billion industry, offered little if any
counseling or education as required of groups with tax-exempt status.
Other such agencies will be required to report on their activities. The
I.R.S. is sending compliance inquiries to each of the 740 known tax-exempt
credit counseling agencies not already under audit.
"Depending on the responses received, additional audits may be undertaken,"
the agency said.
Mr. Everson said groups looking to make a profit would secure tax-exempt
status and make cold phone calls to people in desperate financial straits.
They would use scare tactics to sell the people "cookie cutter" debt
management plans that often were not geared toward reducing the consumers'
debt and often were too costly to pay.
Mr. Everson added that the agency was following up the revocations with some
criminal investigations, but would not detail them.
The agency in recent years has tightened up its review of new applications
by credit counseling firms for tax-exempt status. Since 2003, the I.R.S. has
reviewed 100 such applications and approved only 3.
The actions come as consumers and the counseling industry are having to
learn to live under a new and more restrictive federal bankruptcy law.
Congress last year gave the financial counseling sector a new role in the
nation's bankruptcy system by making it harder for people to wipe out debt
and requiring consumers to consult with an approved credit counselor before