Back in the middle of December I got a tip that Todd Ossenfort of Pioneer Credit Counseling had received a notice from the IRS that he had to repay over a million dollars from an issue surrounding private benefit transaction. At the time I looked at their 990 return and noticed two areas. One was the internal family relationships I saw.
The second was one that I wondered if the relationships between the nonprofit and for-profit companies had created a problem.
I started asking around to see if the rumor was true. I contacted Todd Ossenfort, the head of Pioneer Credit Counseling (Black Hills Children’s Ranch) and asked him directly if the rumor was true. On December 21st he told me point blank, “I really don’t know how these things get started. This is news to me. It’s not true. The “rumor” is false.”
At the time I told Todd that his word was good enough for me and I dropped the issue.
Well a a tipster (send in your tips here) just sent me proof that there was more to the story. I love my tipster (send in your tips here)s.
Apparently on August 12, 2010, four full months before I asked Todd about the rumor, the IRS sent Laca Ossenfort a notice of tax deficiency for an excess benefit transaction. – Source. The notice stated:
We have determined that you were a disqualified person of Black Hills Children’s Ranch, doing business as Pioneer Credit Counseling (“Pioneer”) during 2005, within the meaning of I.R.C. 4958(f)(1). We have further determined that Pioneer was an applicable tax exempt organization and that you engaged in an excess benefit transaction with Pioneer during 2005.
Specifically, we have determined that in 2005 Pioneer paid $585,000 to you through an intermediary for which no reciprocal economic value was provided to Pioneer. As such, you engaged in an indirect excess benefit transaction and are liable for the first tier excise tax computed pursuant to I.R.C. 4958(a)(1) as shown on the attached Form 4883.
We have further determined that you were an organization manager of Pioneer and that as an organization manager you participated in the excess benefit transaction described above, knowing it to be such a transaction within the meaning of I.R.C. 4958(a)(2). We have further determined that you have not demonstrated that such participation was not willful or that there was reasonable cause for such knowing participation. As such, you are liable for the excise tax computed pursuant to I.R.C. 4958 (a)(2) as shown on the attached Form 4883.
We have further determined that you have not established that you have corrected the excess benefit transaction described above. To correct, the amount of the excess benefit transaction plus applicable interest must be paid so as to undo the excess benefit transaction in accord with the principle enumerated in Treas. Reg. 53.4958-7. As such, we have determined that you are liable for the applicable second tier excise tax computed pursuant to I.R.C. 4958(b) as shown on the attached Form 4883.
On November 2, 2010, a month and a half before I asked Todd, Ossenfort and four lawyers filed a complaint against the IRS in tax court. – Source. What is interesting in the response was I did not know that Laca Ossenfort had been involved with Pioneer Credit Counseling before Todd had. The complaint says Laca was involved in 1990 and Todd did not become actively involved till 1996.
The heart of the issue seems to be in 2005, creditors started demanding that they would only work with credit counseling groups that did not have servicing contracts between related parties. The complaint says, “and informed Pioneer that they would no longer provide fair share grants to Pioneer if its service agreement with Savoy remained in effect.”
Savoy was the processing company that Laca Ossenfort started with her mother, Marilyn Beaton, in October of 1999 and that Pioneer used to provide back office services, for a fee. It also appears Savoy provided marketing services as well. While the related companies of SJD Holdings and Ozcorp Holdings provided facilities. – Source
So in 2005, in an apparent effort to protect fair share funding for Pioneer, Laca Ossenfort and her mother agreed to sell Savoy to Pioneer Credit Counseling, of which she was involved, for $650,000. Laca Ossenfort then had to get herself out of Savoy to protect fair share for Pioneer so she sold all the shares to a Savoy employee for $585,000 on February 24, 2005. On March 1, 2005 Pioneer then bought out Ms. Garreaux, the employee, for $650,000. – Source
On January 7, 2011 (source) the IRS responded to the Ossenfort complaint and took continued issue with the transaction. The IRS said:
- Petitioner was an organization manager of Pioneer in 2005 who knowingly participated in the excess benefit transaction.
- Petitioner was an organization manager of Pioneer as she was an officer of Pioneer.
- Petitioner participated in the excess benefit transaction by taking affirmative action to facilitate the transaction, including selling all of her shares of Savoy to an employee of Savoy at the same time Pioneer agreed to buyout its contract with Savoy.
- Petitioner was aware of section 4958 and its rules in sufficient degree. In 2000, at the formation of Savoy she received a legal memorandum from counsel for Pioneer, Steven J Chidester, describing such.
- Petitioner had actual knowledge of the facts; was aware that the transaction may violate Federal tax law governing excess benefit transactions; and negligently failed to make reasonable attempts to ascertain whether the transaction would be an excess benefit transaction. – Source
In closing, the IRS attorney didn’t buy the explanation and told the court the total amount due should be the total amount due.
It will be interesting to see how this all resolves itself.
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