Credit Counselors Latest To Feel IRS Wrath

After a two-year audit of 63 [tag]credit counseling agencies[/tag], representing 56 percent of the industry’s revenues, audits of 41 agencies, representing 40 percent of the industry’s revenues, have resulted in revocation, proposed revocation or other termination of their [tag]Internal Revenue[/tag] Section 501(c)(3) [tag]tax-exempt[/tag] status. The status was initially granted because the agencies promised to provide educational and [tag]counseling services[/tag] to financially strapped consumers trying to get out of debt. Too often, little or no counseling or education was actually offered. Instead, profit was the primary motivator, the IRS reports. The Loan Officer\'s Practical Guide to Residential Finance

The federal agency is pulling compliance checks on each of some 743 credit counseling agencies, virtually all such agencies with or seeking tax-exempt status. After evaluating 110 applications, only three have been approved for tax-exempt status, 95 were not approved and 12 are pending. “Many offered little or no counseling or education and appeared to be primarily motivated by profit. In many instances, these agencies also served the private interests of related for-profit businesses, officers and directors,” the federal tax agency reported. The IRS says legitimate credit counseling organizations provide valuable services to those in need, but too many of them have used their tax-exempt status to circumvent consumer protection laws and take advantage of those who are already in financial distress.

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