Credit Counseling Compliance Project: Current IRS Position
Is the IRS still giving tax-exempt status to credit counseling organizations? If so, what steps is it taking to ensure that a credit counseling organization meets all the requirements for tax exemption?
Yes. If a credit counseling organization meets the requirements of sections 501(c)(3) and 501(q), the IRS will approve its application for tax-exempt status.
Realizing the need to prevent additional abusive organizations from receiving tax exemption, we implemented a rigorous front-end review process to target applications for exemption from organizations conducting credit counseling activities. We added new questions to Form 1023 (application for tax-exempt status) to help us identify organizations that have a relationship with a for-profit service provider. A trained group of determination agents carefully reviews all applications for tax-exempt status that may involve credit counseling activities to differentiate compliant organizations from those that are abusive. Because of the careful scrutiny applied to new applications for tax exemption, the IRS has effectively stopped the proliferation of abusive credit counseling organizations receiving tax-exempt status.