Apparently Consumer & Business Debt Counseling Services (CBDC) is part of a request for investigation with the Internal Revenue Service in an effort to examine the status and revoked their charitable status. A tipster (send in your tips here) forwarded me a copy of the official request for examination.
This 501(c) nonprofit credit counseling agency is alleged to have paid substantial amounts for referrals in violation of the following IRS code:
SEC. 1220. ADDITIONAL STANDARDS FOR CREDIT COUNSELING ORGANIZATIONS.
(q) SPECIAL RULES FOR CREDIT COUNSELING ORGANIZATIONS.—
(1) IN GENERAL.—An organization with respect to which the provision of credit counseling services is a substantial purpose shall not be exempt from tax under subsection (a) unless such organization is described in paragraph (3) or (4) of subsection (c) and such organization is organized and operated in accordance with the following requirements:
(F) 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.”
Additionally, the IRS has issued public guidance on the provisions of 501(q) and its requirements to credit counseling agencies. The IRS guidance3 states:
“What does the new law require for credit counseling organizations exempt under Code section 501(c)(3) or 501(c)(4)?
In addition to current legal requirements, an organization must meet the following new rules:
Referrals – Cannot pay for referrals or receive amounts for providing referrals for debt management plans.
After a review of CBDC the IRS submitted document says:
Evidence of Payment for Referrals
Petitioner substantiates the request for investigation based upon the 2008 IRS Form 990 filing by Consumer & Business Debt Counseling Services. Specifically, Consumer & Business Debt Counseling Services states on page 8 of the return:
Name and Business Address – Description of Services – Compensation
Coastal Credit Solutions – Referral Fees – 494,097
Hess, Kennedy & Company – Referral Fees – 611,264
Progressive Debt Relief – Referral Fees – 110,202
Credit One Debt Solutions – Referral Fees – 540,608
The Credit Exchange – Referral Fees – 838,230
Page 10 of the 2008 IRS Form 990, in the “Statement of Functional Expenses”, lists:
“Referral Fees ($) 1,471,679”
Similarly, the 2009 IRS Form 990 filing by Consumer & Business Debt Counseling Services also lists extensive referral fees:
White Cap Financial Services – Referral Fees – 120,291
The Johnson Law Group – Referral Fees – 300,855
The Credit Exchange – Referral Fees – 4,253,651
Hess Kennedy & Company – Referral Fees – 798,322
Credit One Debt Solutions – Referral Fees – 394,571”
Additionally, the 2009 IRS Form 990, on page 10, also lists:
“Statement of Functional Expenses
Referral Fees ($) 798,322”
Consumer & Business Debt Counseling Services - CBDC Subject of IRS Investigation Request by Steve Rhode
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