Determination 1029037: IRS revoked a civic organization’s exemption after finding it did not operate as a social welfare organization

View official IRS release (PDF)

The on-site examination took place on June 19, 20XX with President. The documentation
provided by President was the following: 1) copies of a part of the Form 1023 application, 2) the
determination letter, and 3) a State of State annual report for January 1, 20XX. No other
information was provided.

During the initial interview, President stated that he did not want to terminate or revoke ORG.
President stated that he is the only active officer/counselor in the organization. He stated that he
conducts credit counseling sessions to about 3 or 4 individuals a month; his focus Is on individuals
that are undergoing some sort of mortgage troubles, i.e., homeowners in distress and first-time
homebuyers. President also stated to have conducted credit counseling sessions primarily at his
home and close by towns in his neighborhood (NEIGHBORHOOD) and around town such as
State City and downtown During his counseling sessions he would go over their
budgets and either suggests doing short sales or moving to apartment complexes. President
stated that he also conducted counseling sessions verbally, with no handouts given to clients. In
ORG's response to the IRS letter of October 3, 20XX, President offered the following statement
with respect to the termination of ORG:

“True—I was trying to emphasize the importance of what | believe is a viable ORG, in terms of
Home Owner Counseling. | believe you noted in this paragraph that | said ‘| did NOT want to
terminate ORG’. | also pointed out that it is inactive only in the concept that it receives no income,
has no paid employees, (all persons are volunteers) and all expenses are paid by myself, te:
office supplies, travel, etc. In this way | can provide some sort of service to needy homeowners.”

President also made the following statement with respect to the termination of ORG:

“...f would rather NOT terminate ORG because it becomes more and more evident that the ‘home
owners’ and consumers whom | usually counsel are becoming more and more anxious about their
ability to pay their mortgages. “

Form 886-A (1-19XX) Catalog Number 20810W Page (7 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer _ Tax Identification Number | Year/Period ended

ORG | EIN 12/31/20XX

President went on to say that ORG has no income, no DMP, no expenditures. He claimed that if
there were expenditures, it would be paid out of his own pocket. ORG used to operate its
business at the Address address for several years. Now he conducts his business either at his
home or at his client's home. ORG ran ads in the yellow pages to solicit clients. President also
operates another business, a for-profit business called CO-2 President has a real estate broker
license and about 3 real estate agents working under him. In ORG’s response to the IRS letter of
October 3, 20XX, President stated that he no longer runs ads in the yellow pages. President
stated the officers and board members of ORG are:

President, President and counselor
V.P., Vice-President
Treasurer, Secretary/Treasurer.

President stated that his duties included credit counseling, meeting with the board once a year, as
well as operating and managing ORG. President confirmed that V.P. and Treasurer have no
actual interactions with the organization, solely being additional names present on a list of
directors. V.P. and Treasurer are not related to President. V.P. is an insurance agent and
Treasurer teaches at a university. President is the only counselor for ORG.

During the initial interview, President stated that he obtains clients through referrals from previous
clients, friends, and clients in real estate dealings. On occasion, President would give out the CO-
1 telephone number (another credit counseling service) to his clients as a referral.

In ORG’s response to the IRS letter of October 3, 20XX, President offered the following statement
with respect to relationship with CO-1:

“..CO-1 is a 501(c)(3), non-profit corporation. However, it is not a part of ORG or ORG. | do not
know, nor should | comment on ‘CO-1’. | am not familiar with CO-1, their Board of Directors, or
Officers. | do not believe | intended to, nor would | say that ‘CO-1’ took over ‘ORG’. CO-1
Educational is a separate corporation, incorporated under the laws of the State of State and
recognized by the IRS as a 501(c)(3) organization with it’s own board of Directors and Officers, of
which RA-1 is neither on their Board of Directors or an officer.”

Research of CO-2 disclosed that the corporation was no longer in business and the officer listed
was not President. Additionally, research revealed President’s association with CO-3 The State
Secretary of State web site for CO-3 shows that the corporation is a domestic for-profit
corporation, incorporated December 16, 19XX. The corporation was rated as active and in good
standing. The description of its purpose was “real estate sales and development”. The mailing
address shown was Address, City, State, telephone number PHONE. The registered agent's
name was President. The officers listed were President, President; RA-1, Vice-President; RA-2,
Secretary/Treasury.

Form 886-A (1-19Xx) Catalog Number 20810W Page 8 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

For Bee 0 EXPLANATIONS OF ITEMS

| Tax Identification Number Year/Period ended

Name of taxpayer

ORG EIN 12/3 1/20XX

l

President also provided a copy of the State of State annual report for January 1, 20XX. The
annual report shows the following:

e Name and address of organization: ORG, Address, City, State.

e Description of actual activity: “(inactive) to counsel individuals with credit problems
and contact their creditors to resolve the problems”.

e Registered agent's name and address: President, Address, City, State.

e The officers/directors name: President—President/Director, V.P.—Vice-
president/Director; Treasurer—Secretary/Treasurer/Director.

Form 990, Return of Organization Exempt From Income Tax

IRS records indicate that ORG did not file Form 990 for the period under examination or for prior
and subsequent years.

Related organization

At or about the same time, President also submitted an application for ORG (“State Credit”) under
Code section 501(c)(3). State Credit’s exemption under section 501(c)(3) was revoked by the IRS
in September 20XX. In correspondence of October 23, 20XX, President offered the following
statement with respect to the relationship with State Credit, where “ORG” refers to ORG and
“ORG" refers to ORG:

“ORG applied for it’s 501(c)(3) in 19XX and it was approved. It was not until many years later that
it received an adverse ruling from the IRS. ORG was not restarted; it went ahead with the
501(c)(4) recommendation only to find out, as you stated, the credit granters did, in effect, not
recognize a 501(c)(4) because they were only familiar with 501(c)(3) organizations. Thus, we
receive no DMP funds and lacked operating funds. “

ORG Web site:

State Credit web site was reviewed at website. A copy of the home page was printed and shown
as Exhibit A. According to exhibit A, the opening page of the web site contains the introduction
heading, “ORG” below the heading the statement, “Welcome to ORG!” was displayed. After the
introduction heading, the following statement was displayed:

ORG (ORG) is a non-profit community service offering:

e Free confidential personal stewardship counseling, education, debt management programs
and negotiating with creditors in eliminating debt in the fastest time period possible.

Form 886-A (1-19XX) Catalog Number 20810W — Page. publish.no.irs.gov Department of the Treasury-Internal Revenue Service

| Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer ~ | Tax Identification Number ‘Year/Period ended

ORG EIN 12/31/20XX

e Free budget, credit, debt, financial and, housing counseling with a bonded, certified, licensed
professional.

Our consumer advocates are here to help!

Lower interest rates, fees and monthly payments
Credit reports and evaluation

Establish budget and financial goals

Stop collection calls/harassment

Pay off debts in the fastest time period possible
Automatic bill payment

Settle accounts for as low as 50%

Money management education

Debt consolidation

On the same page, the web site showed the address and telephone number for contact
information as follows:

Address
City, State
Tel: Fax:
Toll free:

Research of State Credit was also conducted at the State Secretary of State web site. According
to the State Secretary of State web site, ORG is a domestic nonprofit corporation incorporated
November 9, 19XX. The corporate status is shown as “active”. The stated purpose of the
organization was reported as “comprehensive credit counseling education & establishing voluntary
debt repayment programs”. The mailing address was reported at Address, City, State. The
registered agent’s name and address was President, Address, City, State. The officers listed are
President-- President, Stratford Whiting-- Vice-president, Treasurer--Secretary, and V.P.--
Treasurer

Law

Section 501(q) of the Internal Revenue Code establishes standards that a credit counseling
organization must satisfy for exemption under section 501(c)(3) or section 501(c)(4), as follows:

1. the organization provides credit counseling services tailored to the specific needs and
   circumstances of consumers,

2. the organization makes no loans to debtors and does not negotiate the making of loans on
   behalf of debtors,

3. the organization provides services for the purpose of improving a consumer's credit record,
   credit history, or credit rating only to the extent that such services are incidental to providing
   credit counseling services, and

Form 886-A (1-19Xx) Catalog Number 20810W — Page 10 _publish.no.irs. gov Bree Muen eS USEPA aT ne MEO ASAT.

| Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period enced

ORG EIN 12/31/20XX

4. the organization does not charge any separately stated fee for services for the purpose of
   improving any consumer's credit record, credit history, or credit rating.

5. the organization does not refuse to provide credit counseling services to a consumer due to the
   inability of the consumer to pay, the ineligibility of the consumer for debt management plan
   enrollment, or the unwillingness of the consumer to enroll in a debt management plan.

6. the organization establishes and implements a fee policy which requires that any fees charged
   to a consumer for services are reasonable, allows for the waiver of fees if the consumer is
   unable to pay, and except to the extent allowed by State law, prohibits charging any fee based
   in whole or in part on a percentage of the consumer's debt, the consumer's payments to be
   made pursuant to a debt management plan, or the projected or actual savings to the consumer
   resulting from enrolling in a debt management plan.

7. at all times the organization has a board of directors or other governing body which is
   controlled by persons who represent the broad interests of the public, such as public officials
   acting in their capacities as such, persons having special knowledge or expertise in credit or
   financial education, and community leaders,

8. not more than 20 percent of the voting power of which is vested in persons who are employed
   by the organization or who will benefit financially, directly or indirectly, from the organization’s
   activities, and

9. not more than 49 percent of the voting power of which is vested in persons who are employed
   by the organization or who will benefit financially, directly or indirectly, from the organization's
   activities.

10. the organization does not own more than 35 percent of the total combined voting power of any
    corporation, the profits interest of any partnership which is in the trade or business of lending
    money, repairing credit, or providing debt management plan services, payments processing, or
    similar services, and

11. the organization receives no amount for providing referrals to others for debt management plan
    services, and pays no amount to others for obtaining referrals of consumers.

The credit counseling provision of the Pension Protection Act of 2006 defines credit counseling
Services as:

Credit counseling services are 1) the provision of educational information to the general public on

budgeting, personal finance, financial literacy, saving and spending practices, and the sound use

of consumer credit; 2) the assisting of individuals and families with financial problems by providing
them with counseling; or 3) any combination of such activities.

The provision defines debt management plan services as:

Debt management plan services are services related to the repayment, consolidation, or
restructuring of a consumer's debt, and includes the negotiation with creditors of lower interest
rates, the waiver or reduction of fees, and the marketing and processing of debt management
plans.

Form 886-A (1-19XX) Catalog Number 20810W = Page. 11 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS

(Rev. January 19XX)

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

501(c)(4) of the Code provides, in part, for the exemption of civic leagues or organizations not

organized for profit but operated exclusively for the promotion of social welfare. An organization is
operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in
some way the common good and general welfare of the people of the community. An
organization embraced within this section is one which is operated to bring about civic betterment
and social improvements.

Treas. Reg. 1.501(c)(4)-1(a)(2)(i) provides that an organization is operated exclusively for the

promotion of social welfare if it is primarily engaged in promoting in some way the common good
and general welfare of the community. An organization embraced within this section is one that is
operated primarily for the purpose of bringing about civic betterments and social improvements.

The regulations require that an organization claiming exemption under 501(c)(4) of the Code must

operate for the benefit of the community as a whole rather than for the benefit of a limited group.
Compare Rev. Rul. 78-69, 1978-1 C.B. 156, which holds that an organization providing rush hour
commuter bus service to all residents of a community qualifies for exemption under 501(c)(4),

with Rev. Rul. 55-311, 1955-1 C.B. 72, which holds that a local association of employees
operating a bus primarily for the convenience of its members does not so qualify. Also compare
Rev. Rul. 62-167, 1962-2 C.B. 142, which holds that an organization retransmitting television
signals for the benefit of an entire community qualifies for exemption under 501(c)(4), with Rev.

Rul. 54-394, 1954-2 C.B. 131, which holds that an organization providing television on a
cooperative basis does not qualify.

Additionally, Erie Endowment v. United States, 316 2d 151, 1963, holds that a nonprofit
corporation formed to obtain and operate a low-cost housing cooperative was held not to be a
civic league or social welfare organization because it did not offer a program of service to benefit
the community-at-large.

Rev. Rul. 78-50, 1978-1 CB 155, (Jan. 01, 1978), states in part, that a nonprofit organization that
processes consumer complaints concerning products and services provided by business
establishments, meets with the parties involved to encourage resolution of the problem,
recommends a fair solution and, if the proposed solution is not accepted, informs the parties about
appropriate judicial or administrative bodies that may be used to resolve the disputes qualifies for
exemption under 501(c)(4) of the Code.

Rev. Rul. 65-299, 1965-2 C.B. 165, states in part, that a nonprofit organization that was formed to
assist families and individuals with financial problems and to help reduce the incidence of personal
bankruptcy in the community qualifies as a social welfare organization under section 501(c)(4) of
the Code.

Rev. Proc. 2007-52, with respect to revocation or modification of a determination, states in part,
the revocation or modification of a determination letter or ruling recognizing exemption may be

Form 886-A (1-19XX) Catalog Number 20810W = Page 12 ~_publish.no.irs.gov DepEWiMeMbCH TiS Wises YATE) OSCUR Siar

| Schedule number or exhibit

rom 836-4 1900 EXPLANATIONS OF ITEMS

Name of taxpayer . Tax Identification Number | Year/Period ended

ORG | EIN 12/3 1/20XX

retroactive if the organization omitted or misstated a material fact, operated in a manner materially
different from that originally represented, or, in the case of organizations to which section 503 of
the Code applies, engaged in a prohibited transaction with the purpose of diverting corpus or
income of the organization from its exempt purpose and such transaction involved a substantial
part of the corpus or income of such organization.

In Credit Counseling Centers v. S. Portland, 814 A.2d 458 (S. C. Me. 2002), the Supreme Court of
Maine denied state tax exemption to a credit counseling agency that provided significant benefits
to creditors. Credit card companies commonly make payments to credit counseling agencies of a
portion of the funds they receive from clients of the agencies. These payments are known as “fair
share” payments and are a source of substantial funding for credit counseling agencies. In this
case, the credit counseling agency received 60 percent of its income from “fair share” payments
from credit card companies, at the rate of 8.5% to 9% of debt payments.

Taxpayer's position

ORG will be allowed 30 days to review the examination report and respond.

Government’s position

Based on the information provided by ORG, we conclude that ORG is not operated for an exempt
purpose as described in 501(c)(4). For an organization to be exempt under 501(c)(4), it must be

organized and operated exclusively for the promotion of social welfare. An organization is
operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in
some way the common good and general welfare of the people of the community.

Section 501(q) of the Internal Revenue Code sets restrictions on who may serve on the governing
board of a credit counseling organization. This includes public officials, community leaders, and
persons having special knowledge or expertise in credit or financial education. No more than 49
percent of the board may be employees of the organization, creditors, or those who will benefit
financially in any other way.

ORG does not have a board of directors or a governing body that is controlled by persons who
represent a broad interest of the public, such as public officials acting in their capacities such as
persons having special knowledge or expertise in credit or financial education, and community
leaders.

ORG has not established that its operated for the common good and general welfare of the people
of the community. During the course of the examination, it was noted that ORG submitted
conflicting information concerning the actual activities of the organization. In the initial interview,
President claimed that the services offered by ORG were counseling to distressed homeowners
and first-time homebuyers.

Form 886-A (1-19Xx) Catalog Number 20810W Page 13 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Rev e364 10xX) EXPLANATIONS OF ITEMS

Name of taxpayer 7 Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

ORG's Articles of Incorporation, application for exemption, and information provided on Form
13770, stated ORG’s activities as providing counseling in personal stewardship, education in debt
management programs, and negotiating with creditors in eliminating debt. The evidence suggests
that ORG has been inactive since its inception.

The State Secretary of State web site reported the status of the organization as “(inactive) to
counsel individuals with credit problems and contact their creditors to resolve the problems’.
However, President, claimed that the organization is only inactive to the extent that the
organization “receives no income, has no paid employees, (all persons are volunteers) and all
expenses are paid by myself, ie: office supplies, travel, etc. In this way | can provide some sort of
service to needy homeowners.”

The organization has no employees and no operating funds. The volunteer officers as indicated in
its application and to the Secretary of State are also inactive except for President. President
claimed to be the only active officer and the only counselor. It appears that President is operating
ORG in a manner similar to a sole proprietorship business than a corporation. Moreover, the
organization does not have or distribute newsletters, newspaper articles, advertisements,
brochures, pamphlets, or maintain financial statements to show its operations. Accordingly, ORG
has not established that it has maintained a traditional business model such as maintaining
records, hiring employees, or maintaining a formal office.

The regulations require that an organization claiming exemption under 501(c)(4) of the Code must

operate for the benefit of the community as a whole rather than for the benefit of a limited group.
Compare Rev. Rul. 78-69, 1978-1 C.B. 156, which holds that an organization providing rush hour
commuter bus service to all residents of a community qualifies for exemption under section
501(c)(4), with Rev. Rul. 55-311, 1955-1 C.B. 72, which holds that a local association of
employees operating a bus primarily for the convenience of its members does not so qualify. Also
compare Rev. Rul. 62-167, 1962-2 C.B. 142, which holds that an organization retransmitting
television signals for the benefit of an entire community qualifies for exemption under section
501(c)(4), with Rev. Rul. 54-394, 1954-2 C.B. 131, which holds that an organization providing
television on a cooperative basis does not qualify.

Additionally, Erie Endowment v. United States, 316 2d 151, 1963, holds that a nonprofit
corporation formed to obtain and operate a low-cost housing cooperative was held not to be a
civic league or social welfare organization because it did not offer a program of service to benefit
the community-at-large. The concept of social welfare includes the provision of benefits to the
community at large. The providing of benefits to a narrow group of recipients, in most cases, is
not considered as promoting social welfare.

It is the government's position that the ORG operation is in a manner that is materially different
from that represented in its application for exemption. In ORG’s application for exemption, signed
under penalties of perjury of August 20XX, ORG represented that it was “a community service
organization providing budget, credit, debt counseling, stewardship and repayment programs. To

Form 886-A (1-19XX) Catalog Number 20810W = Page. 14 ~—_publish.no.irs.gov PSSST UD) VCE ALA CLE EID Sane

Schedule number or exhibit

‘Rev an oon EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number ik Year/Period ended

ORG EIN | 12/3 1/20XX

provide counseling to families and individual who have credit/debt problems; to include assistance
in developing and utilization of a plan for liquidation of debts; to promote educational programs
and tools dealing with the wise and unwise use of credit, budgeting, and money management.
These activities were initiated in March 20XX at Address, City, State, provided by counselors at
ORG.”

Revocation of a determination letter may be retroactive if the organization operated in a manner
materially different from that originally represented. Rev. Proc. 20XX-52, Treas. Reg. §
601.201(n)(6)(i), § 14.01; Rev. Proc. 20XX-4, § 14.01.

On the Form 13770 questionnaire, ORG listed their internet site address as website; however,
after inspecting that site, it was determined that the site refers to ORG as the provider of credit
counseling and debt solutions. The web site provided complete details on the services offered by
ORG. IRS records indicate that the ORG had its exempt status revoked in February 20XX.

According to the ORG website for 20XX and 20XX, the services offered were the following:

e Free confidential personal stewardship counseling, education, debt management
programs and negotiating with creditors in eliminating debt in the fastest time period
possible.

e Free budget, credit, debt, financial and, housing counseling with a bonded, certified,
licensed professional

The website further advertised that the organization can help in the following ways:

e Lower interest rates, fees and monthly payments
e Credit reports and evaluation

e Establish budget and financial goals

e Stop collection calls/harassment

e Pay off debts in the fastest time period possible

e Automatic bill payment

e Settle accounts for as low as 50%

e Money management education

e Debt consolidation

The web site also showed the address of Address, City, State
Telephone # Fax: #Toll Free: #.

Based on the information submitted, it appears that ORG is operating as State Credit, which was
revoked by the IRS in February 20XX. The web site address given by ORG was that of State
Credit's web site address. The officers and board listed on the application for exemption and
State Secretary of State are the same as State Credit. Moreover, the services and purposes

Form 886-A (1-19XX) Catalog Number 20810W = Page 15 _publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer_ : | Tax Identification Number - Year/Period ended

ORG | EIN | 12/31/20XX

stated for ORG are those of State Credit. ORG is continuing on the operations of State Credit
even though State Credit was revoked by the IRS in February 20XX.

In the organization’s correspondence of March 17, 20XX to the IRS, ORG enclosed a copy of
State Credit's Form 990 return along with completed Form 13770. A review of the completed
Form 13770 disclosed the following information:

e President wrote in the name of the organization as “ORG” and employer identification
number EIN.

e President responded to “yes” to have a web site and wrote in the ORG website as website.

e Provided the organization service as consumer credit counseling services, debt
management services, and debt negotiation services. The organization offered education
and/or counseling consumers, in person, writing, or using electronic means; helping
consumers consolidate debts; negotiating with creditors on behalf of consumers to lower
interest rates, waive fees, adjust balances, or restore acceptable credit ratings.

e The educational material, outreach, and credit counseling activities were the same activities
as ORG.

e With respect to governance, the organization stated that it is governed by a community-
based board that includes significant representation by religious organizations, civic groups,
labor unions, educational institutions and business groups. The organization also marked
that it is governed by a board that has no familial or business relationships and is
independent of creditors, contractors, employees or others with a financial interest in the
organization.

e With respect to governance--governing board information, the organization stated that there
are 5 governing board members, no governing board members are compensated, 3 board
members with backgrounds in personal finance, 1 board member with background in
education, and 2 in nonprofit organizations.

A review of the return revealed that the return was signed by President on March 12, 20XX and
the officers listed were the same as ORG. A review of the cover letter attached to the
correspondence disclosed the State Credit logo, address, telephone number, and operating hours
were the same as ORG. The State Credit logo on the letterhead showed as follows:

ORG
A Comprehensive Credit Counseling Service
Non-Profit Organization

Conclusion

Form 886-A (1-19Xx) Catalog Number 20810W Page 16 publish.no.irs gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer | Tax identification Number Year/Period ended

ORG EIN 12/31/20XX

In order to qualify for exemption under 501(c)(4) an organization must be both organized and

operated to achieve a purpose that is described under that Code section. ORGs has failed to
demonstrate that it is operated in accordance with Internal Revenue Code 501(c)(4) and 501(q)

governing qualification for tax exemption under the Code. Accordingly, the tax-exempt status of
ORG as an organization described in 501(c)(4) of the Code should be revoked.

ORG is required to file income tax returns on Form 1120 for all years beginning after December
31, 20XX.

Form 886-A (1-19XX) Catalog Number 20810W Page 17 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Plain-English summary

The IRS revoked a civic organization’s exemption under IRC § 501(c)(4), effective January 1 of the redacted year. The examination report found that the organization did not establish that it operated primarily for social welfare, had become inactive, and appeared to continue the operations and materials of another credit counseling organization whose exemption had been revoked. The report also found that the organization lacked the governance structure required for a credit counseling organization and did not show that it served the community as a whole. The organization was required to file Form 1120 returns for years beginning January 1 of the redacted year.

Ruling snapshot

• Question: Did the organization qualify for continued exemption under IRC § 501(c)(4)?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(4) and 501(q); Treas. Reg. § 1.501(c)(4)-1(a)(2)(i); Rev. Proc. 2007-52

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

ly TE/GE: EO Examinations
UE 1100 Commerce Street 501.04-00
NP Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Date: March 15, 2010

Release Number: 201029037

Release Date: 7/23/10 Taxpayer Identification Number:
LEGEND Form:
ORG = Organization name Tax Year(s) Ended:

Person to Contact/ID Number:
Contact Numbers:

ORG Telephone:

ADDRESS Fax:

CERTIFIED MAIL — RETURN RECEIPT REQUESTED

Dear

This is a final determination regarding your exempt status under section 501(c)(4) of the
Internal Revenue Code (IRC). Recognition of your exemption from Federal income tax
as an organization described in Internal Revenue Code section 501(c)(4) is revoked
effective January 1, 20XX because it is determined that you have not established that
you are observing the conditions required for the continuation of an exempt status.

We previously mailed you a report explaining our proposed revocation of your tax-
exempt status. In that correspondence, we requested that you respond to the report
within 30 days from the date of the letter accompanying the report.

Because we did not hear from you within that 30 day period, we will process your case
on the basis of the recommendations shown in the report.

We have determined that you fail to qualify for exempt status under any other
subsection of IRC 501(c).

You are required to file Federal income tax returns on Form 1120. These returns
should be filed with the appropriate Service center for all years beginning January 1,
20XX.

2
If you have any questions, please call the contact person at the telephone number
shown in the heading of this letter.

Sincerely,

Nanette M. Downing
Acting Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

» / TE/GE Exempt Organizations Examinations Division
“aE 1100 Commerce Street MC 4980 DAL
TAX EXEMPTAND Dallas, Texas 75242

GOVERNMENT ENTITIES
DIVISION

March 15, 2010

Taxpayer Identification Number:

ORG
ADDRESS Form:

Tax Year(s) Ended:
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

CERTIFIED MAIL — RETURN RECEIPT REQUESTED

Dear

We have enclosed a copy of our report of examination explaining why we believe an
adjustment of your organization's exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed
Publication 3498, The Examination Process, explains how to appeal an Internal
Revenue Service (IRS) decision. Publication 3498 also includes information on your
rights as a taxpayer and the IRS collection process.

If you request a conference, we will forward your written statement of protest to the
Appeals Office and they will contact you. For your convenience, an envelope is
enclosed.

If you and Appeals do not agree on some or all of the issues after your Appeals
conference, or if you do not request an Appeals conference, you may file suit in United
States Tax Court, the United States Court of Federal Claims, or United States District
Court, after satisfying procedural and jurisdictional requirements as described in
Publication 3498.

Letter 3610 (04-2002)
Catalog Number 34801V

to

You may also request that we refer this matter for technical advice as explained in
Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues. lf a
determination letter is issued to you based on technical advice, no further administrative
appeal is available to you within the IRS on the issue that was the subject of the
technical advice.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to
Proposed Adverse Action. We will then send you a final letter modifying or revoking
exempt status. If we do not hear from you within 30 days from the date of this letter, we
will process your case on the basis of the recommendations shown in the report of
examination and this letter will become final. In that event, you will be required to file
Federal income tax returns for the tax period(s) shown above. File these returns with
the Ogden Service Center within 60 days from the date of this letter, unless a request
for an extension of time is granted. File returns for later tax years with the appropriate
service center indicated in the instructions for those returns.

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal
appeals process. The Taxpayer Advocate cannot reverse a legally correct tax
determination, or extend the time fixed by law that you have to file a petition in a United
States court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling. You
may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you
prefer, you may contact your local Taxpayer Advocate at:

If you have any questions, please call the contact person at the telephone number
shown in the heading of this letter. If you write, please provide a telephone number and
the most convenient time to call if we need to contact you.

Letter 3610 (04-2002)
Catalog Number 34801V

Thank you for your cooperation.

Enclosures:
Publication 892
Publication 3498
Form 6018

Report of Examination
Envelope

Sincerely,

Sunita Lough
Director, EO Examinations

Letter 3610 (04-2002)
Catalog Number 34801V

Schedule number or exhibit

Form 886-A
(Rev. January 19Xx) EXPLANATIONS OF ITEMS

Name of taxpayer : Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

ORG Organization name xX = Date Address = address City = city State =
state Phone = phone website = website President = president V.P. = VP.
Treasurer = treasurer RA-1, RA-2 & RA-3 = 157, 2¥° g 379 RA CO-1, CO-2 & CO-3 =

1°", 2"° & 3° COMPANIES
Issues

Whether ORG (“ORG”) qualifies for exemption under 501(c)(4) of the Internal Revenue Code
("Code").

1. ORG's primary activity is not operated in a manner designed to further 501(c)(4) purposes.

2. ORG has not established that it is observing the conditions for continuation of its exempt
   status as required under 501(c)(4) and Rev. Proc. 20XX-52.

Facts
History overview

ORG was recognized as a tax-exempt organization on August 29, 20XX under 501(c)(4) of the
Code. ORG originally applied for tax-exemption under Code 501(c)(3). During the application

process, ORG was notified by the Determination Specialist that the organization’s operations
would better qualify under 501(c)(4). ORG agreed to be recognized under 501(c)(4).

ORG filed its Articles of Incorporation on March 8, 20XX. The purpose of the organization as
enumerated in its Articles of Incorporation was to “provide assistance to individuals or families in
the resolution of credit/debt problems”. The Articles of Incorporation reported the principal office
of ORG as Address, City, State. The Articles of Incorporation also show that the original officers
included President--President; V.P.--Vice-President; Treasurer--Secretary/Treasurer.

The State Secretary of State web site reported ORG’s stated purpose as “(inactive) to counsel
individuals with credit problems and contact their creditors to resolve the problems”. ORG was
incorporated on March 8, 20XX, its mailing address shown as Address, City, State, with the
registered agent's name of President, address of Address, City, State. The officers listed included
President--President, V.P.--Vice-President, Treasurer--Secretary/Treasurer.

As confirmed by President, ORG started to operate its debt management plan (DMP) program as
its primary activity under Code section 501(c)(4). However, business was not picking up,
especially with the credit card companies who traditionally paid fair share, who primarily deal with
501(c)(3) organizations. The organization became inactive. In correspondence of October 23,
20XX, President added the following statement with respect to the ORG being inactive:

Form 886-A (1-19XX) Catalog Number 20810W Page 1 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

“.., because of a lack of funding by the credit grantors and no grants or DMPs, we decided not to
expand our operations’.

Application for Recognition of Exemption (Form 1023 & Form 1024)

ORG originally applied for tax-exemption under Code 501(c)(3). During the application process,

ORG was notified by the Determination Specialist that the organization’s operations would better
qualify under Code 501(c)(4). ORG agreed to be recognized under Code 501(c)(4) on August 9,

20XX.

On August 29, 20XX, based on the information that ORG provided in its application for exemption
and on the assumption that ORG would operate in the manner represented in its application, ORG
was recognized as a tax-exempt organization described in 501(c)(4).

In the application, ORG described its activities and operational information as follows.

1. ORG described its past, present and planned activities as follows:

ORG is a community service organization providing budget, credit, debt counseling,
stewardship and repayment programs. To provide counseling to families and individual
who have credit/debt problems; to include assistance in developing and utilization of a plan
for liquidation of debts; to promote educational programs and tools dealing with the wise
and unwise use of credit, budgeting, and money management. These activities were
initiated in March 20XX at Address, City, State, provided by counselors at ORG.

2. ORG described its source of financial support as follows:
   Contributions and donations.
3. ORG listed the following individuals as officers or directors:

e President—President/Director
e V.P.---Vice President/Director
e Treasurer—Secretary/Treasurer/Director

The address of President was shown as Address, City, State and the address of ORG as
Address, City, State, telephone numbers PHONE and PHONE.

ORG responded to the Determination Specialist’s letter of June 25, 20XX as follows with regard to
their stated purpose:

Form 886-A (1-19XX) Catalog Number 20810W — Page. -2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

| Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

"Name of taxpayer ls identification Number Year/Period ended

EIN | 12/31/20XX

“Please note ORG was incorporated as a ‘not for profit’ community service organization for
the sole purpose of budget, credit, debt and financial education, and repayment programs
and to teach consumers about the wise use of money and stewardship.”

ORG

Form 13770, Credit Counseling and Form 990 Filing Requirement Questionnaire

IRS correspondence dated February 23, 20XX, and April 8, 20XX, was issued to ORG to conduct
a compliance check with regard to the organization’s credit counseling operation for the tax year
ended December 31, 20XX. In the correspondence, the IRS requested ORG to complete Form
13770, Credit Counseling and Form 990 Filing Requirement Questionnaire. ORG responded to
the correspondence in a letter dated March 17, 20XX. As part of the response, ORG enclosed a
copy of the Form 990 return for ORG. The return was signed by President on March 12, 20XX. It
was noted that the cover letter had the ORG logo, address, telephone number, and operating
hours. The address shown was Address, City, State, telephone # PHONE, with operating hours of
8:30 — 5:00. The ORG logo on the letterhead showed as follows:

ORG
A Comprehensive Credit Counseling Service
Non-Profit Organization

The completed Form 13770 was signed by President, President, on March 17, 20XX.
ORG responded to the Form 13770 questionnaire as shown below.

Part |, Organization:

President wrote in the name of the organization as “ORG” and the employer identification
number of EIN.

Part Il, Not required to file Form 990:
President wrote in “N/A”.
Part Ill, Operation:
Q #1: Responded “yes” to having a web site. Provided the web site address of: website.

Q#2: Responded to having provided the following services: Consumer credit counseling
services, debt management services, and debt negotiation services.

Q#3: Responded to having the following activities with respect to Q#2:
Education and/or counseling consumers, in person, in writing, or using electronic means;
Helping consumers consolidate debts; negotiating with creditors on behalf of consumers to
lower interest rates, waive fees, adjust balances, or restore acceptable credit ratings.

Form 886-A (1-19XX) Catalog Number 20810W — Page 3 publish.no.irs.gov Se yEaMeM eins Vite STy ALLEN eam ENS

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN | 12/31/20XX

Part IV, Consumer Credit Counseling/Debt Management Credit Repair/Debt Negotiation Services:

Q#1: Stated that the organization’s services are available to everyone, regardless of income
or assets.

Q#2: Fee structure are reduced or waived in hardship situations or because of client’s inability
to pay.

Q#3: In counseling sessions, counselors are asked each person to provide detailed
information about the following:

1. The type, amount and source of all income(current and future)

2. Assets

3. Monthly and annual expenses

4. Secured debt such as mortgages and car loans

5. Unsecured debt, including student loans and credit cards

6. Other liabilities such as child support, alimony and tax liabilities

7. Employment

8. Significant expenditures

9. Buying habits

10. Past or anticipated changes in earnings, assets, expenses and liabilities, including the
    reason or cause for those changes

11.Health and other life issues that may affect the individual’s financial situations

Q#4: In counseling sessions, counselors present clients with the following options to address
debt problems:

1. Negotiating directly with creditors on payment or interest rate relief

2. Mechanics and advantages of creating and maintaining a budget

3. Changing buying habits or strategies for saving money

4. Custom-designed self-administered payment plans

5. Enrolling in debt management plans (DMPs)

6. Filing for bankruptcy

7. Other—referral for homeless shelter, mental health, food bank, social service

8. Counselors discuss the advantages and disadvantages of each of the options checked
   above

9. Counselors offer written materials on budgeting and managing personal finances

Q#5: In counseling sessions, the following was marked as criteria for recommendations:

1. Counselors analyze all information before making recommendations
2. Counselors use objective criteria when recommending any options in Q#2 above that
   best meet the client’s individual needs, goals and circumstances.

Form 886-A (1-19Xx) Catalog Number 20810W ~~ Page_4 publish.no.irs.gov PePaIMSt erie VbSeSty ALLE IE SCuNO Six

Schedule number or exhibit

Form 886-A

(Rev January 19Xx) EXPLANATIONS OF ITEMS

Name of taxpayer 7 Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

Q#6: In counseling sessions, the following was marked with respect to referrals:

1. Counselors provide specific and appropriate referrals to social service organizations for
   appropriate support services when they identify problems such as unemployment, lack
   of training, substance abuse, literacy or psychological issues.

Q#7: |In counselor education and training, the following was marked:

1. Counselors receive comprehensive training in counseling skills, personal finance,
   budgeting, and credit and debt management in live or interactive training sessions and
   through detailed written manuals.

2. Counselors are trained on how to develop options and recommendations that address
   the particular circumstances of each client.

3. Counselors are trained to identify underlying personal problems such as illness, job
   loss, or suicide risk that may contribute to financial problems, and on making
   appropriate referrals.

4. Counselors are evaluated on how thoroughly and effectively they develop and present
   options to match the particular circumstances of each client.

Q#8: In outreach and advertising, use of website, educational pages can be accessed without
providing contact information was marked.

Q#9: In outreach and advertising, content of advertising, the organization marked the box that
state the advertising mentions DMPs as one option for addressing debt problems, not as a
universal solution.

Q#10: In outreach and advertising, referrals, the organization marked the box that state the
organization receives potential clients from referral by employers, union leaders, clergy and/or
community organizations.

Q#11: In governance, the organization marked the following:

1. The organization is governed by a community-based board that includes significant
   representation by religious organizations, civic groups, labor unions, educational
   institutions and business groups.

2. The organization is governed by a board that has no familial or business relationships
   and is independent of creditors, contractors, employees or others with a financial
   interest in the organization.

Q#12: In governance, governing board information, the organization state that there are

1. 5 governing board members
2. No governing board members are compensated

Form 886-A (1-19Xx) Catalog Number 20810W Page 5 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

ll EXPLANATIONS OF ITEMS

|
(Rev, January 19XX) |

Name of taxpayer | Tax Identification Number Year/Period ended

ORG EIN | 12/31/20XX

3. 3 board members with backgrounds in personal finance, 1 board member with
   background in education, and 2 in nonprofit organizations.

Q#13: With respect to educational materials/seminars:

1. The organization offers seminars taught by qualified instructors that are designed to
   meet the current needs of financially stressed individuals.

2. The organization distributes publications concerning financial management, budgeting,

and credit.

Seminars are open and advertised to the public.

The website contains educational materials that are readily accessible to the public.

All clients are provided with educational materials that will assist them with budgeting

and their financial management goals, whether they choose to receive additional

counseling or purchase additional services such as a DMP.

6. All DMP and payment-plan clients are assigned a counselor who provides counseling
   and support during the plan.

7. Clients who do not choose DMP services are offered continuing educational
   opportunities and help with budgeting.

Cl =

Q#14: With respect to services provided:

Educational services

Counseling services

Advertising, mass mailing and/or telephone solicitations

Administrative services to manage DMPs, such as processing client payments and
disbursing the funds, resolving credit card payment problems, and negotiating “Fair
Share” with creditors.
s- OW >

Q#21: With respect to creditor “fair share” payments:

1. Direct payments to organization
   Q#22: With respect to the Office of the United States Trustee (Bankruptcy Trustee):

2. The organization applied to the Office of the U.S. Trustee to be certified provider of
   credit counseling under the new bankruptcy act in mid-October 20XX.

Operation of ORG activities

Per a telephone conversation with President on April 11, 20XX, President said that he would
agree to terminate ORG because of its inactivity. President mentioned that ORG was inactive
since its inception and expected ORG to be inactive in the future. ORG does not have any books
or records (no income or expenses to report). There are no employees; the officers are all

Form 886-A (1-19Xx) Catalog Number 20810W Page 6 publish no.irs. gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886° ovo EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/3 1/20XX

volunteers. President is looking into changing the name of ORG to a name that would not have
the word “credit counseling” or perhaps forming another organization. Currently, ORG is using
CO-1 to answer telephone calls for ORG. Subsequent to the telephone conversation with
President, the agent issued Information Document Request (IDR) # 0001. In that IDR, the agent
asked for documentation to affirm that ORG was no longer in business. President responded to
IDR #0001 in a letter of May 13, 20XX. In the letter, President stated that ORG was not dissolved
and thus, the documentation requested was not submitted.

IDR #0002 was issued to ORG on May 22, 20XX. The IDR was to advise ORG of an examination
of ORG books and records at Address, City, State on June 19, 20XX. The IDR also asked ORG
to provide various documents to verify the organization’s operations and record keeping
compliance.

The on-site examination took place on June 19, 20XX with President. The documentation
provided by President was the following: 1) copies of a part of the Form 1023 application, 2) the
determination letter, and 3) a State of State annual report for January 1, 20XX. No other
information was provided.

During the initial interview, President stated that he did not want to terminate or revoke ORG.
President stated that he is the only active officer/counselor in the organization. He stated that he
conducts credit counseling sessions to about 3 or 4 individuals a month; his focus is on individuals
that are undergoing some sort of mortgage troubles, i.e., homeowners in distress and first-time
homebuyers. President also stated to have conducted credit counseling sessions primarily at his
home and close by towns in his neighborhood (NEIGHBORHOOD) and around town such as
State City and downtown During his counseling sessions he would go over their
budgets and either suggests doing short sales or moving to apartment complexes. President
stated that he also conducted counseling sessions verbally, with no handouts given to clients. In
ORG's response to the IRS letter of October 3, 20XX, President offered the following statement
with respect to the termination of ORG:

“True—I was trying to emphasize the importance of what | believe is a viable ORG, in terms of
Home Owner Counseling. | believe you noted in this paragraph that | said ‘1 did NOT want to
terminate ORG’. | also pointed out that it is inactive only in the concept that it receives no income,
has no paid employees, (all persons are volunteers) and all expenses are paid by myself, ie:
office supplies, travel, etc. In this way | can provide some sort of service to needy homeowners.”

President also made the following statement with respect to the termination of ORG:
“| would rather NOT terminate ORG because it becomes more and more evident that the ‘home

owners’ and consumers whom | usually counsel are becoming more and more anxious about their
ability to pay their mortgages. “

Form 886-A (1-19XX) Catalog Number 20810W = Page_7 publish.no.irs. gov DEER OwS WCE MY ALLELES SCING SanHeG

Form 886-A
(Rev January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer _ Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

President went on to say that ORG has no income, no DMP, no expenditures. He claimed that if
there were expenditures, it would be paid out of his own pocket. ORG used to operate its
business at the Address address for several years. Now he conducts his business either at his
home or at his client's home. ORG ran ads in the yellow pages to solicit clients. President also
operates another business, a for-profit business called CO-2 President has a real estate broker
license and about 3 real estate agents working under him. In ORG’s response to the IRS letter of
October 3, 20XX, President stated that he no longer runs ads in the yellow pages. President
stated the officers and board members of ORG are:

President, President and counselor
V.P., Vice-President
Treasurer, Secretary/Treasurer.

President stated that his duties included credit counseling, meeting with the board once a year, as
well as operating and managing ORG. President confirmed that V.P. and Treasurer have no
actual interactions with the organization, solely being additional names present on a list of
directors. V.P. and Treasurer are not related to President. V.P. is an insurance agent and
Treasurer teaches at a university. President is the only counselor for ORG.

During the initial interview, President stated that he obtains clients through referrals from previous
clients, friends, and clients in real estate dealings. On occasion, President would give out the CO-
1 telephone number (another credit counseling service) to his clients as a referral.

In ORG’s response to the IRS letter of October 3, 20XX, President offered the following statement
with respect to relationship with CO-1:

“.CO-1 is a 501(c)(3), non-profit corporation. However, it is not a part of ORG or ORG. | do not
know, nor should | comment on ‘CO-1’. | am not familiar with CO-1, their Board of Directors, or
Officers. | do not believe | intended to, nor would | say that ‘CO-1’ took over ‘ORG’. CO-1
Educational is a separate corporation, incorporated under the laws of the State of State and
recognized by the IRS as a 501(c)(3) organization with it’s own board of Directors and Officers, of
which RA-1 is neither on their Board of Directors or an officer.”

Research of CO-2 disclosed that the corporation was no longer in business and the officer listed
was not President. Additionally, research revealed President’s association with CO-3 The State
Secretary of State web site for CO-3 shows that the corporation is a domestic for-profit
corporation, incorporated December 16, 19XX. The corporation was rated as active and in good
standing. The description of its purpose was “real estate sales and development”. The mailing
address shown was Address, City, State, telephone number PHONE. The registered agent's
name was President. The officers listed were President, President; RA-1, Vice-President; RA-2,
Secretary/Treasury.

Form 886-A (1-19xx) Catalog Number 20810W Page 8 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exit

Form 886-A
(Rev, January 19Xx) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

President also provided a copy of the State of State annual report for January 1, 20XX. The
annual report shows the following:

e Name and address of organization: ORG, Address, City, State.

e Description of actual activity: “(inactive) to counsel individuals with credit problems
and contact their creditors to resolve the problems’.

e Registered agent’s name and address: President, Address, City, State.

e The officers/directors name: President—President/Director, V.P.—Vice-
president/Director; Treasurer—Secretary/Treasurer/Director.

Form 990, Return of Organization Exempt From Income Tax

IRS records indicate that ORG did not file Form 990 for the period under examination or for prior
and subsequent years.

Related organization

At or about the same time, President also submitted an application for ORG (“State Credit”) under
Code section 501(c)(3). State Credit’s exemption under section 501(c)(3) was revoked by the IRS
in September 20XX. In correspondence of October 23, 20XX, President offered the following
statement with respect to the relationship with State Credit, where “ORG” refers to ORG and
“ORG’ refers to ORG:

“ORG applied for it's 501(c)(3) in 19XX and it was approved. It was not until many years later that
it received an adverse ruling from the IRS. ORG was not restarted; it went ahead with the
501(c)(4) recommendation only to find out, as you stated, the credit granters did, in effect, not
recognize a 501(c)(4) because they were only familiar with 501(c)(3) organizations. Thus, we
receive no DMP funds and lacked operating funds. “

ORG Web site:

State Credit web site was reviewed at website. A copy of the home page was printed and shown
as Exhibit A. According to exhibit A, the opening page of the web site contains the introduction
heading, “ORG” below the heading the statement, “Welcome to ORG!” was displayed. After the
introduction heading, the following statement was displayed:

ORG (ORG) is a non-profit community service offering:

e Free confidential personal stewardship counseling, education, debt management programs
and negotiating with creditors in eliminating debt in the fastest time period possible.

Form 886-A (1-19XX) Catalog Number 20810W ~— Page) publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A
(Rev January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

e Free budget, credit, debt, financial and, housing counseling with a bonded, certified, licensed
professional.

Our consumer advocates are here to help!

Lower interest rates, fees and monthly payments
Credit reports and evaluation

Establish budget and financial goals

Stop collection calls/harassment

Pay off debts in the fastest time period possible
Automatic bill payment

Settle accounts for as low as 50%

Money management education

Debt consolidation

On the same page, the web site showed the address and telephone number for contact
information as follows:

Address
City, State
Tel: Fax:
Toll free:

Research of State Credit was also conducted at the State Secretary of State web site. According
to the State Secretary of State web site, ORG is a domestic nonprofit corporation incorporated
November 9, 19XX. The corporate status is shown as “active”. The stated purpose of the
organization was reported as “comprehensive credit counseling education & establishing voluntary
debt repayment programs”. The mailing address was reported at Address, City, State. The
registered agent's name and address was President, Address, City, State. The officers listed are
President-- President, Stratford Whiting-- Vice-president, Treasurer--Secretary, and V.P.--
Treasurer

Law

Section 501(q) of the Internal Revenue Code establishes standards that a credit counseling
organization must satisfy for exemption under section 501(c)(3) or section 501(c)(4), as follows:

1. the organization provides credit counseling services tailored to the specific needs and
   circumstances of consumers,

2. the organization makes no loans to debtors and does not negotiate the making of loans on
   behalf of debtors,

3. the organization provides services for the purpose of improving a consumer's credit record,
   credit history, or credit rating only to the extent that such services are incidental to providing
   credit counseling services, and

Form 886-A (1-19XX) Catalog Number 20810W Page 10 _ publish.no.irs. gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev January 19X%) EXPLANATIONS OF ITEMS

Name of taxpayer ; : Tax Identification Numbe: Year/Period ended

ORG EIN 12/3 1/20XX

4. the organization does not charge any separately stated fee for services for the purpose of
   improving any consumer's credit record, credit history, or credit rating.

5. the organization does not refuse to provide credit counseling services to a consumer due to the
   inability of the consumer to pay, the ineligibility of the consumer for debt management plan
   enrollment, or the unwillingness of the consumer to enroll in a debt management plan.

6. the organization establishes and implements a fee policy which requires that any fees charged
   to a consumer for services are reasonable, allows for the waiver of fees if the consumer is
   unable to pay, and except to the extent allowed by State law, prohibits charging any fee based
   in whole or in part on a percentage of the consumer's debt, the consumer’s payments to be
   made pursuant to a debt management plan, or the projected or actual savings to the consumer
   resulting from enrolling in a debt management plan.

7. atall times the organization has a board of directors or other governing body which ts
   controlled by persons who represent the broad interests of the public, such as public officials
   acting in their capacities as such, persons having special knowledge or expertise in credit or
   financial education, and community leaders,

8. not more than 20 percent of the voting power of which is vested in persons who are employed
   by the organization or who will benefit financially, directly or indirectly, from the organization's
   activities, and

9. not more than 49 percent of the voting power of which is vested in persons who are employed
   by the organization or who will benefit financially, directly or indirectly, from the organization's
   activities.

10.the organization does not own more than 35 percent of the total combined voting power of any
corporation, the profits interest of any partnership which is in the trade or business of lending
money, repairing credit, or providing debt management plan services, payments processing, or
similar services, and

11.the organization receives no amount for providing referrals to others for debt management plan
services, and pays no amount to others for obtaining referrals of consumers.

The credit counseling provision of the Pension Protection Act of 2006 defines credit counseling
Services as:

Credit counseling services are 1) the provision of educational information to the general public on

budgeting, personal finance, financial literacy, saving and spending practices, and the sound use

of consumer credit; 2) the assisting of individuals and families with financial problems by providing
them with counseling; or 3) any combination of such activities.

The provision defines debt management plan services as:

Debt management plan services are services related to the repayment, consolidation, or
restructuring of a consumer's debt, and includes the negotiation with creditors of lower interest
rates, the waiver or reduction of fees, and the marketing and processing of debt management
plans.

Form 886-A (1-19XX) Catalog Number 20810W Page 11 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

| |
Name of taxpayer / Identification Number Year/Period ended

EIN 12/31/20XX

ORG

501(c)(4) of the Code provides, in part, for the exemption of civic leagues or organizations not

organized for profit but operated exclusively for the promotion of social welfare. An organization is
operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in
some way the common good and general welfare of the people of the community. An
organization embraced within this section is one which is operated to bring about civic betterment
and social improvements.

Treas. Reg. 1.501(c)(4)-1(a)(2)(i) provides that an organization is operated exclusively for the

promotion of social welfare if it is primarily engaged in promoting in some way the common good
and general welfare of the community. An organization embraced within this section is one that is
operated primarily for the purpose of bringing about civic betterments and social improvements.

The regulations require that an organization claiming exemption under 501(c)(4) of the Code must

operate for the benefit of the community as a whole rather than for the benefit of a limited group.
Compare Rev. Rul. 78-69, 1978-1 C.B. 156, which holds that an organization providing rush hour
commuter bus service to all residents of a community qualifies for exemption under 501(c)(4),

with Rev. Rul. 55-311, 1955-1 C.B. 72, which holds that a local association of employees
operating a bus primarily for the convenience of its members does not so qualify. Also compare
Rev. Rul. 62-167, 1962-2 C.B. 142, which holds that an organization retransmitting television
signals for the benefit of an entire community qualifies for exemption under 501(c)(4), with Rev.

Rul. 54-394, 1954-2 C.B. 131, which holds that an organization providing television on a
cooperative basis does not qualify.

Additionally, Erie Endowment v. United States, 316 2d 151, 1963, holds that a nonprofit
corporation formed to obtain and operate a low-cost housing cooperative was held not to be a
civic league or social welfare organization because it did not offer a program of service to benefit
the community-at-large.

Rev. Rul. 78-50, 1978-1 CB 155, (Jan. 01, 1978), states in part, that a nonprofit organization that
processes consumer complaints concerning products and services provided by business
establishments, meets with the parties involved to encourage resolution of the problem,
recommends a fair solution and, if the proposed solution is not accepted, informs the parties about
appropriate judicial or administrative bodies that may be used to resolve the disputes qualifies for
exemption under 501(c)(4) of the Code.

Rev. Rul. 65-299, 1965-2 C.B. 165, states in part, that a nonprofit organization that was formed to
assist families and individuals with financial problems and to help reduce the incidence of personal
bankruptcy in the community qualifies as a social welfare organization under section 501(c)(4) of
the Code.

Rev. Proc. 2007-52, with respect to revocation or modification of a determination, states in part,
the revocation or modification of a determination letter or ruling recognizing exemption may be

Form 886-A (1-19Xx) Catalog Number 20810W = Page__ 12 ~—_publish.no.irs.gov SEPERUI GUUS UISESUR WiC. OH I Eton Santas

Form 886-A
(Rev January 19XX) EXPLANATIONS OF ITEMS

Name ot taxpayer | Tax Identification Number Year/Period ended

ORG | EIN 12/31/20XX

retroactive if the organization omitted or misstated a material fact, operated in a manner materially
different from that originally represented, or, in the case of organizations to which section 503 of
the Code applies, engaged in a prohibited transaction with the purpose of diverting corpus or
income of the organization from its exempt purpose and such transaction involved a substantial
part of the corpus or income of such organization.

In Credit Counseling Centers v. S. Portland, 814 A.2d 458 (S. C. Me. 2002), the Supreme Court of
Maine denied state tax exemption to a credit counseling agency that provided significant benefits
to creditors. Credit card companies commonly make payments to credit counseling agencies of a
portion of the funds they receive from clients of the agencies. These payments are known as “fair
share” payments and are a source of substantial funding for credit counseling agencies. In this
case, the credit counseling agency received 60 percent of its income from “fair share” payments
from credit card companies, at the rate of 8.5% to 9% of debt payments.

Taxpayer’s position

ORG will be allowed 30 days to review the examination report and respond.

Government’s position

Based on the information provided by ORG, we conclude that ORG is not operated for an exempt
purpose as described in 501(c)(4). For an organization to be exempt under 501(c)(4), it must be

organized and operated exclusively for the promotion of social welfare. An organization is
operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in
some way the common good and general welfare of the people of the community.

Section 501(q) of the Internal Revenue Code sets restrictions on who may serve on the governing
board of a credit counseling organization. This includes public officials, community leaders, and
persons having special knowledge or expertise in credit or financial education. No more than 49
percent of the board may be employees of the organization, creditors, or those who will benefit
financially in any other way.

ORG does not have a board of directors or a governing body that is controlled by persons who
represent a broad interest of the public, such as public officials acting in their capacities such as
persons having special knowledge or expertise in credit or financial education, and community
leaders.

ORG has not established that its operated for the common good and general welfare of the people
of the community. During the course of the examination, it was noted that ORG submitted
conflicting information concerning the actual activities of the organization. In the initial interview,
President claimed that the services offered by ORG were counseling to distressed homeowners
and first-time homebuyers.

Form 886-A (1-19XX) Catalog Number 20810W ~— Page «-13.~—_publish.no.irs. gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev Janwary 19xX) | EXPLANATIONS OF ITEMS |

Name of taxpayer Tax Identification Number “| Year/Period ended

ORG EIN | 12/31/20XX

ORG's Articles of Incorporation, application for exemption, and information provided on Form
13770, stated ORG’s activities as providing counseling in personal stewardship, education in debt
management programs, and negotiating with creditors in eliminating debt. The evidence suggests
that ORG has been inactive since its inception.

The State Secretary of State web site reported the status of the organization as “(inactive) to
counsel individuals with credit problems and contact their creditors to resolve the problems’.
However, President, claimed that the organization is only inactive to the extent that the
organization “receives no income, has no paid employees, (all persons are volunteers) and all
expenses are paid by myself, ie: office supplies, travel, etc. In this way | can provide some sort of
service to needy homeowners.”

The organization has no employees and no operating funds. The volunteer officers as indicated in
its application and to the Secretary of State are also inactive except for President. President
claimed to be the only active officer and the only counselor. It appears that President is operating
ORG in a manner similar to a sole proprietorship business than a corporation. Moreover, the
organization does not have or distribute newsletters, newspaper articles, advertisements,
brochures, pamphlets, or maintain financial statements to show its operations. Accordingly, ORG
has not established that it has maintained a traditional business model such as maintaining
records, hiring employees, or maintaining a formal office.

The regulations require that an organization claiming exemption under 501(c)(4) of the Code must

operate for the benefit of the community as a whole rather than for the benefit of a limited group.
Compare Rev. Rul. 78-69, 1978-1 C.B. 156, which holds that an organization providing rush hour
commuter bus service to all residents of a community qualifies for exemption under section
501(c)(4), with Rev. Rul. 55-311, 1955-1 C.B. 72, which holds that a local association of
employees operating a bus primarily for the convenience of its members does not so qualify. Also
compare Rev. Rul. 62-167, 1962-2 C.B. 142, which holds that an organization retransmitting
television signals for the benefit of an entire community qualifies for exemption under section
501(c)(4), with Rev. Rul. 54-394, 1954-2 C.B. 131, which holds that an organization providing
television on a cooperative basis does not qualify.

Additionally, Erie Endowment v. United States, 316 2d 151, 1963, holds that a nonprofit
corporation formed to obtain and operate a low-cost housing cooperative was held not to be a
civic league or social welfare organization because it did not offer a program of service to benefit
the community-at-large. The concept of social welfare includes the provision of benefits to the
community at large. The providing of benefits to a narrow group of recipients, in most cases, is
not considered as promoting social welfare.

It is the government's position that the ORG operation is in a manner that is materially different
from that represented in its application for exemption. In ORG’s application for exemption, signed
under penalties of perjury of August 20XX, ORG represented that it was “a community service
organization providing budget, credit, debt counseling, stewardship and repayment programs. To

Form 886-A (1-19Xx) Catalog Number 20810W Page 14 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

| Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name ol taxpayer | Tax Identification Number Year/Period ended

ORG EIN 12/31/20XX

provide counseling to families and individual who have credit/debt problems; to include assistance
in developing and utilization of a plan for liquidation of debts; to promote educational programs
and tools dealing with the wise and unwise use of credit, budgeting, and money management.
These activities were initiated in March 20XX at Address, City, State, provided by counselors at
ORG.”

Revocation of a determination letter may be retroactive if the organization operated in a manner
materially different from that originally represented. Rev. Proc. 20XX-52, Treas. Reg. §
601.201(n)(6)(1), § 14.01; Rev. Proc. 20XX-4, § 14.01.

On the Form 13770 questionnaire, ORG listed their internet site address as website; however,
after inspecting that site, it was determined that the site refers to ORG as the provider of credit
counseling and debt solutions. The web site provided complete details on the services offered by
ORG. IRS records indicate that the ORG had its exempt status revoked in February 20XX.

According to the ORG website for 20XX and 20XX, the services offered were the following:

e Free confidential personal stewardship counseling, education, debt management
programs and negotiating with creditors in eliminating debt in the fastest time period
possible.

e Free budget, credit, debt, financial and, housing counseling with a bonded, certified,
licensed professional

The website further advertised that the organization can help in the following ways:

e Lower interest rates, fees and monthly payments
e Credit reports and evaluation

e Establish budget and financial goals

e Stop collection calls/harassment

e Pay off debts in the fastest time period possible
e Automatic bill payment

e Settle accounts for as low as 50%

e Money management education

e Debt consolidation

The web site also showed the address of Address, City, State
Telephone # Fax: #Toll Free: #.

Based on the information submitted, it appears that ORG is operating as State Credit, which was
revoked by the IRS in February 20XX. The web site address given by ORG was that of State
Credit’s web site address. The officers and board listed on the application for exemption and
State Secretary of State are the same as State Credit. Moreover, the services and purposes

Form 886-A (1-19Xx) Catalog Number 20810W = Page__ 15 —_publish.no.irs.gov BIS eDMEN TO NS We UR IAS tee VISES TORE NA

Schedule number or exhibit

‘Sow Bee 19xx) EXPLANATIONS OF ITEMS

|
Name of taxpayer ] Tax Identification Number Year/Period ended

| |
ORG EIN 12/31/20XX

stated for ORG are those of State Credit. ORG is continuing on the operations of State Credit
even though State Credit was revoked by the IRS in February 20XX.

In the organization’s correspondence of March 17, 20XX to the IRS, ORG enclosed a copy of
State Credit’s Form 990 return along with completed Form 13770. A review of the completed
Form 13770 disclosed the following information:

e President wrote in the name of the organization as “ORG” and employer identification
number EIN.

e President responded to “yes” to have a web site and wrote in the ORG website as website.

e Provided the organization service as consumer credit counseling services, debt
management services, and debt negotiation services. The organization offered education
and/or counseling consumers, in person, writing, or using electronic means; helping
consumers consolidate debts; negotiating with creditors on behalf of consumers to lower
interest rates, waive fees, adjust balances, or restore acceptable credit ratings.

e The educational material, outreach, and credit counseling activities were the same activities
as ORG.

e With respect to governance, the organization stated that it is governed by a community-
based board that includes significant representation by religious organizations, civic groups,
labor unions, educational institutions and business groups. The organization also marked
that it is governed by a board that has no familial or business relationships and is
independent of creditors, contractors, employees or others with a financial interest in the
organization.

e With respect to governance--governing board information, the organization stated that there
are 5 governing board members, no governing board members are compensated, 3 board
members with backgrounds in personal finance, 1 board member with background in
education, and 2 in nonprofit organizations.

A review of the return revealed that the return was signed by President on March 12, 20XX and
the officers listed were the same as ORG. A review of the cover letter attached to the
correspondence disclosed the State Credit logo, address, telephone number, and operating hours
were the same as ORG. The State Credit logo on the letterhead showed as follows:

ORG
A Comprehensive Credit Counseling Service
Non-Profit Organization

Conclusion

Form 886-A (1-19XX) Catalog Number 20810W = Page (16 ~_publishno.irs. gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax identification Number Year/Period ended

ORG EIN 12/31/20XX

In order to qualify for exemption under 501(c)(4) an organization must be both organized and

operated to achieve a purpose that is described under that Code section. ORGs has failed to
demonstrate that it is operated in accordance with Internal Revenue Code 501(c)(4) and 501(q)

governing qualification for tax exemption under the Code. Accordingly, the tax-exempt status of
ORG as an organization described in 501(c)(4) of the Code should be revoked.

ORG is required to file income tax returns on Form 1120 for all years beginning after December
31, 20XX.

Form 886-A (1-19Xx) Catalog Number 20810W Page 17 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

| Schecuie number or exhibit

Form 886-A
‘eon January 19%) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/3 1/20XX
LEGEND

CxG = Organization name XX = Date Address = address City = city State =
state Phone = phone website = website President = president V.P. = V.P.
Treasurer = treasurer RA-1, RA-2 & RA-3 = 157, 28° g 382 RA CO-1, CO-2 & CO-3 =

i, 2" ¢ 38" COMPANIES
Issues

Whether ORG (“ORG") qualifies for exemption under 501(c)(4) of the Internal Revenue Code
(“Code”).

1. ORG's primary activity is not operated in a manner designed to further 501(c)(4) purposes.

2. ORG has not established that it is observing the conditions for continuation of its exempt
   status as required under 501(c)(4) and Rev. Proc. 20XX-52.

Facts
History overview

ORG was recognized as a tax-exempt organization on August 29, 20XX under 501(c)(4) of the
Code. ORG originally applied for tax-exemption under Code 501(c)(3). During the application

process, ORG was notified by the Determination Specialist that the organization’s operations
would better qualify under 501(c)(4). ORG agreed to be recognized under 501(c)(4).

ORG filed its Articles of Incorporation on March 8, 20XX. The purpose of the organization as
enumerated in its Articles of Incorporation was to “provide assistance to individuals or families in
the resolution of credit/debt problems”. The Articles of Incorporation reported the principal office
of ORG as Address, City, State. The Articles of Incorporation also show that the original officers
included President--President; V.P.--Vice-President; Treasurer--Secretary/T reasurer.

The State Secretary of State web site reported ORG’s stated purpose as “(inactive) to counsel
individuals with credit problems and contact their creditors to resolve the problems”. ORG was
incorporated on March 8, 20XX, its mailing address shown as Address, City, State, with the
registered agent’s name of President, address of Address, City, State. The officers listed included
President--President, V.P.--Vice-President, Treasurer--Secretary/Treasurer.

As confirmed by President, ORG started to operate its debt management plan (DMP) program as
its primary activity under Code section 501(c)(4). However, business was not picking up,
especially with the credit card companies who traditionally paid fair share, who primarily deal with
501(c)(3) organizations. The organization became inactive. In correspondence of October 23,
20XX, President added the following statement with respect to the ORG being inactive:

Form 886-A (1-19XX) Catalog Number 20810W — Page 1 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/3 1/20XX

“... because of a lack of funding by the credit grantors and no grants or DMPs, we decided not to
expand our operations’.

Application for Recognition of Exemption (Form 1023 & Form 1024)

ORG originally applied for tax-exemption under Code 501(c)(3). During the application process,

ORG was notified by the Determination Specialist that the organization’s operations would better
qualify under Code 501(c)(4). ORG agreed to be recognized under Code 501(c)(4) on August 9,

20XX.

On August 29, 20XX, based on the information that ORG provided in its application for exemption
and on the assumption that ORG would operate in the manner represented in its application, ORG
was recognized as a tax-exempt organization described in 501(c)(4).

In the application, ORG described its activities and operational information as follows.

1. ORG described its past, present and planned activities as follows:

ORG is a community service organization providing budget, credit, debt counseling,
stewardship and repayment programs. To provide counseling to families and individual
who have credit/debt problems; to include assistance in developing and utilization of a plan
for liquidation of debts; to promote educational programs and tools dealing with the wise
and unwise use of credit, budgeting, and money management. These activities were
initiated in March 20XX at Address, City, State, provided by counselors at ORG.

2. ORG described its source of financial support as follows:
   Contributions and donations.
3. ORG listed the following individuals as officers or directors:

e President—President/Director
e V.P.---Vice President/Director
e Treasurer—Secretary/Treasurer/Director

The address of President was shown as Address, City, State and the address of ORG as
Address, City, State, telephone numbers PHONE and PHONE.

ORG responded to the Determination Specialist’s letter of June 25, 20XX as follows with regard to
their stated purpose:

Form 886-A (1-19Xx) Catalog Number 20810W —Page_2 publish.no.irs.gov Dyefreeote iUns) MISES LLER ET TAFT SIRES

Schedule number or exhibit

Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer : Tax Identification Number Year/Period ended

ORG EIN 12/3 1/20XX

“Please note ORG was incorporated as a ‘not for profit’ community service organization for
the sole purpose of budget, credit, debt and financial education, and repayment programs
and to teach consumers about the wise use of money and stewardship.”

Form 13770, Credit Counseling and Form 990 Filing Requirement Questionnaire

IRS correspondence dated February 23, 20XX, and April 8, 20XX, was issued to ORG to conduct
a compliance check with regard to the organization's credit counseling operation for the tax year
ended December 31, 20XX. In the correspondence, the IRS requested ORG to complete Form
13770, Credit Counseling and Form 990 Filing Requirement Questionnaire. ORG responded to
the correspondence in a letter dated March 17, 20XX. As part of the response, ORG enclosed a
copy of the Form 990 return for ORG. The return was signed by President on March 12, 20XX. It
was noted that the cover letter had the ORG logo, address, telephone number, and operating
hours. The address shown was Address, City, State, telephone # PHONE, with operating hours of
8:30 — 5:00. The ORG logo on the letterhead showed as follows:

ORG
A Comprehensive Credit Counseling Service
Non-Profit Organization

The completed Form 13770 was signed by President, President, on March 17, 20XX.
ORG responded to the Form 13770 questionnaire as shown below.

Part |, Organization:

President wrote in the name of the organization as “ORG” and the employer identification
number of EIN.

Part Il, Not required to file Form 990:
President wrote in “N/A”.
Part Ill, Operation:
Q #1: Responded “yes” to having a web site. Provided the web site address of: website.

Q#2: Responded to having provided the following services: Consumer credit counseling
services, debt management services, and debt negotiation services.

Q#3: Responded to having the following activities with respect to Q#2:
Education and/or counseling consumers, in person, in writing, or using electronic means;
Helping consumers consolidate debts; negotiating with creditors on behalf of consumers to
lower interest rates, waive fees, adjust balances, or restore acceptable credit ratings.

Form 886-A (1-19XX) Catalog Number 20810W Page 3 publish.no irs. gov Department of the Treasury-Internal Revenue Service

so B88 ons EXPLANATIONS OF ITEMS

Name of taxpayer : Tax Identification Number Year/Period ended
|

ORG | EIN | 12/31/20XX

Part IV, Consumer Credit Counseling/Debt Management Credit Repair/Debt Negotiation Services:

Q#1: Stated that the organization’s services are available to everyone, regardless of income
or assets.

Q#2: Fee structure are reduced or waived in hardship situations or because of client’s inability
to pay.

Q#3: In counseling sessions, counselors are asked each person to provide detailed
information about the following:

1. The type, amount and source of all income(current and future)

2. Assets

3. Monthly and annual expenses

4. Secured debt such as mortgages and car loans

5. Unsecured debt, including student loans and credit cards

6. Other liabilities such as child support, alimony and tax liabilities

7. Employment

8. Significant expenditures

9. Buying habits

10. Past or anticipated changes in earnings, assets, expenses and liabilities, including the
    reason or cause for those changes

11.Health and other life issues that may affect the individual's financial situations

Q#4: In counseling sessions, counselors present clients with the following options to address
debt problems:

1. Negotiating directly with creditors on payment or interest rate relief

2. Mechanics and advantages of creating and maintaining a budget

3. Changing buying habits or strategies for saving money

4. Custom-designed self-administered payment plans

5. Enrolling in debt management plans (DMPs)

6. Filing for bankruptcy

7. Other—referral for homeless shelter, mental health, food bank, social service

8. Counselors discuss the advantages and disadvantages of each of the options checked
   above

9. Counselors offer written materials on budgeting and managing personal finances

Q#5: In counseling sessions, the following was marked as criteria for recommendations:

1. Counselors analyze all information before making recommendations
2. Counselors use objective criteria when recommending any options in Q#2 above that
   best meet the client's individual needs, goals and circumstances.

Form 886-A (1-19XXx) Catalog Number 20810W Page 4 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A

(Rev. January

Schedule number or exhibit

10x) EXPLANATIONS OF ITEMS

Name of taxpayer _ Tax identification Number Year/Period ended

ORG

EIN | 12/31/20XX

Q#6: In counseling sessions, the following was marked with respect to referrals:

1.

Counselors provide specific and appropriate referrals to social service organizations for
appropriate support services when they identify problems such as unemployment, lack
of training, substance abuse, literacy or psychological issues.

Q#7: In counselor education and training, the following was marked:

1

Counselors receive comprehensive training in counseling skills, personal finance,
budgeting, and credit and debt management in live or interactive training sessions and
through detailed written manuals.

. Counselors are trained on how to develop options and recommendations that address

the particular circumstances of each client.

. Counselors are trained to identify underlying personal problems such as illness, job

loss, or suicide risk that may contribute to financial problems, and on making
appropriate referrals.

. Counselors are evaluated on how thoroughly and effectively they develop and present

options to match the particular circumstances of each client.

Q#8: In outreach and advertising, use of website, educational pages can be accessed without
providing contact information was marked.

Q#9: In outreach and advertising, content of advertising, the organization marked the box that
state the advertising mentions DMPs as one option for addressing debt problems, not as a
universal solution.

Q#10:

In outreach and advertising, referrals, the organization marked the box that state the

organization receives potential clients from referral by employers, union leaders, clergy and/or
community organizations.

Q#11:

1.

Q#12:

In governance, the organization marked the following:

The organization is governed by a community-based board that includes significant
representation by religious organizations, civic groups, labor unions, educational
institutions and business groups.

The organization is governed by a board that has no familial or business relationships
and is independent of creditors, contractors, employees or others with a financial
interest in the organization.

In governance, governing board information, the organization state that there are

. 5 governing board members

No governing board members are compensated

Form 886-A (1-19Xx) Catalog Number 20810W Page 5 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Form 886-A
[Rev January 19X%) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Idenlification Number Year/Period ended

ORG EIN 12/31/20XX

3. 3 board members with backgrounds in personal finance, 1 board member with
   background in education, and 2 in nonprofit organizations.

Q#13: With respect to educational materials/seminars:

1. The organization offers seminars taught by qualified instructors that are designed to
   meet the current needs of financially stressed individuals.

2. The organization distributes publications concerning financial management, budgeting,

and credit.

Seminars are open and advertised to the public.

The website contains educational materials that are readily accessible to the public.

All clients are provided with educational materials that will assist them with budgeting

and their financial management goals, whether they choose to receive additional

counseling or purchase additional services such as a DMP.

6. All DMP and payment-plan clients are assigned a counselor who provides counseling
   and support during the plan.

7. Clients who do not choose DMP services are offered continuing educational
   opportunities and help with budgeting.

Cy = &

Q#14: With respect to services provided:

Educational services

Counseling services

Advertising, mass mailing and/or telephone solicitations

Administrative services to manage DMPs, such as processing client payments and
disbursing the funds, resolving credit card payment problems, and negotiating “Fair
Share” with creditors.

RwWN 3

Q#21: With respect to creditor “fair share” payments:

1. Direct payments to organization
   Q#22: With respect to the Office of the United States Trustee (Bankruptcy Trustee):

2. The organization applied to the Office of the U.S. Trustee to be certified provider of
   credit counseling under the new bankruptcy act in mid-October 20XX.

Operation of ORG activities

Per a telephone conversation with President on April 11, 20XX, President said that he would
agree to terminate ORG because of its inactivity. President mentioned that ORG was inactive
since its inception and expected ORG to be inactive in the future. ORG does not have any books
or records (no income or expenses to report). There are no employees; the officers are all

Form 886-A (1-19XX) Catalog Number 20810W —s Page: «6 publish.no.irs. gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

(Rev Bee“ ARS) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

ORG EIN 12/3 1/20XX

volunteers. President is looking into changing the name of ORG to a name that would not have
the word “credit counseling” or perhaps forming another organization. Currently, ORG is using
COQ-1 to answer telephone calls for ORG. Subsequent to the telephone conversation with
President, the agent issued Information Document Request (IDR) # 0001. In that IDR, the agent
asked for documentation to affirm that ORG was no longer in business. President responded to
IDR #0001 in a letter of May 13, 20XX. In the letter, President stated that ORG was not dissolved
and thus, the documentation requested was not submitted.

IDR #0002 was issued to ORG on May 22, 20XX. The IDR was to advise ORG of an examination
of ORG books and records at Address, City, State on June 19, 20XX. The IDR also asked ORG
to provide various documents to verify the organization’s operations and record keeping
compliance.