IRS TO PULL PLUG ON DEBT COUNSELING SERVICES

REGULATORS SAY NON-PROFIT GROUPS CHARGE HIGH FEES, PAY BIG SALARIES.

WASHINGTON – The Internal Revenue Service’s chief counsel has concluded that many credit-counseling agencies do not meet the requirements to be tax-exempt organizations, setting the stage for revocation of their special tax status.

In an internal advice memo issued recently, the chief counsel’s office said “it can and should be argued that the new generation of credit-counseling organizations does not meet the criteria for exemption.”

Laying out its legal analysis of credit-counseling agencies, the memo said: “They are not providing any meaningful education or relief of the poor,” as would be required for the tax exemptions many are currently receiving.

The memo, available on the IRS Web site, said that many of the nonprofit organizations may also be violating tax-exempt laws because they are being operated for the private benefit of their executives.

The memo comes as the IRS is auditing 50 credit-counseling agencies accounting for about half of the revenue of the $1 billion nonprofit industry.

The audits were prompted by consumer complaints about deceptive and fraudulent marketing practices.

Congress has also held hearings into allegations that many of the newer credit-counseling firms have turned what was once a social service-oriented industry into a profit-driven business that charges consumers high fees to the benefit of founders who siphon off the cash through for-profit affiliates that they also control.