Revocation Of Non Profit Status Of Credit Counseling Agencies By IRS

Certain states in the United States of America need a non profit status to operate as a credit counseling agency, including Maryland. The internal revenue service (IRS) has in the past revoked the non profit status of several of the major credit counseling services. While many small ones have had their status revoked as well, a handful of the larger ones comprise more than half of the credit counseling provided nationwide.

What steered the investigation by the internal service revenue into the functioning of the credit counseling services were various complaints about dubious practices. It was claimed that many so-called non-profit credit counseling services were charging higher fees by cloaking them in mandatory voluntary donations and hidden charges. It was also a matter of concern that whether or not the credit counseling services were providing ample credit education to the consumer which is meant to be one of their primary and agenda for functioning.

This investigation by the IRS has led to instability in the credit counseling field owing to the fact that a large portion of their funding comes from the creditors as what is known as fair share. Fair share is the commission based on the money recovered by a credit counseling service for the creditor by enrolling the consumer into debt management plans. Several banks and credit card companies insist on the credit counseling service having a non-profit status before agreeing to pay them the fair share. Revoking the non-profit status for credit counseling services at jeopardize a major source of the funding.

Since many counseling agencies have had to close doors owing to their non-profit status being revoked it has also created uncertainty in light of the amendment made to the bankruptcy law. It is now mandatory for a consumer to go through a bankruptcy counseling from a legitimate credit counseling service before the bankruptcy can be filed and discharged. Since it is all together not clear what the criteria for a credit counseling service to maintain a non-profit is, many agencies are no longer sure as to whether their non-profit status will be revoked in the future.

Also with more and more credit counseling agencies having to close down their business there is also the question as to whether they will be enough credit counseling agencies left to service the consumers.

In the light of the recent new occasions of non-profit status was several credit counseling agencies the only way a consumer can know whether the credit counseling service is a non-profit entity or not is to check through the evocation listing that the agency periodically posts, unless of course the agency itself makes the information public.