Many credit counselling groups say that they are there to help you and not to make money, which is shown by the fact that they are classified as charitable organisations. The IRS is upset.
The IRS goes after credit counselling groups that say they are not-for-profit.
In the last five years, the IRS has been looking at businesses that say they are non-profit organisations much more closely. Since tax loopholes have been closed over time, the agency has noticed that a lot of high-end tax strategies now involve some kind of charity. During the analysis, the IRS has found that the credit counselling industry has more bad businesses than any other group.
Starting in 2004, the IRS looked into 63 credit counselling groups that said they were non-profit. These "charitable organisations" get more than half of all the money made in the credit counselling business. This is a big reason to do an audit. So, what did the IRS find?
So far, 41 of the audits have been done by the IRS. In each of these 41 audits, the non-profit status of the credit counselling business was either taken away, put on hold, or ended. Yes, each and every one of them has died. Who can think of a bigger lie?
The IRS found some amazing things when they crushed these bad apples. The main reason the groups lost their status was that they didn't do enough for the public good. They didn't help people much or at all with counselling or education. According to the IRS, they were mostly interested in making money. On top of that, the IRS found that most of the businesses had "unique" business relationships with for-profit companies that were owned by the same people. How strange! I can't believe it.
We have to admit that these bad apples only make up about 40–50% of the credit counselling industry as a whole. The rest of the industry that hasn't been checked out might be fine. The IRS doesn't appear to agree. In fact, it has told every company that hasn't been audited yet that it will be audited. I think the blood bath will keep getting worse.
In reality, not all credit counselling agencies are lying when they say they are non-profit. In fact, the IRS has said that it has only approved three out of 100 applications for non-profit status since 2003! The IRS hasn't said who the three people are, which is too bad.
