internal_revenue_service ‘appeals office release number release date date date officer name street city state zip certified mail dear department of the treasury ' employer_identification_number ein person to contact employee id number tel fax uil this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code the code’ it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code effective xx xx xxxx our revocation was made for the following reasons you are not operated exclusively for charitable educational scientific or any other exempt_purpose as is required by sec_501 you are operated for a substantial commercial purpose which is not an exempt_purpose you are operated for a substantial private purpose you serve private rather than public interests and your activities result in substantial private benefit which is not an exempt_purpose contributions to your organization are not deductible under sec_170 of the code _ you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the retum for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of the adverse determination you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th - day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you ina separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you decide to-contest this determination you may file an action for declaratory_judgment under the provisions of sec_7428 of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also 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 matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours acting appeals team manager cc enclosure publication and or department of the treasury internal_revenue_service washington dc tax_exempt_and_government_entities_division date date org address taxpayer_identification_number form tax_year s ended person to contact id number contact number certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 c of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs publication also includes information on your rights as a taxpayer and the irs decision collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the organization involved has exhausted its the administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code of columbia determines that district 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 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 thank you for your cooperation n sincerely director eo examinations enclosures publication publication report of examination form_4621 form 886-a form_6018 cc power_of_attorney power_of_attorney catalog number 34809f letter department of the treasury - internal_revenue_service schedule no or exhibit form 886a explanation of items name of taxpayer org year period ended june 20xx legend org - organization name state -- state president - president secretary news-1 news-2 - dir-1 through dir-9 - companies software dof - dof xx - date address - address country - country - vice president - vice president bk-1 through city - city through bk secretary - new sec_1 through dir dots - dots dobd - dobd wk-1 through wk - does - doe sec_1 t through wk co-1 through co-53 - through art-1 through artl-4 - artl1 - artl-4 software -- issues in response to congressional concern over alleged abuses in the consumer credit counseling industry the internal_revenue_service initiated a compliance project in which certain consumer credit counseling organizations exempt under internal_revenue_code sec_501 were selected for a field_examination as a result org was selected for examination the year under examination is the year ended june 20xx and the issue raised herein is as follows whether org remains operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 if a is engaged primarily it contravention of internal_revenue_code sections’ c and c b that accomplish a nonexempt purpose in activities in b more than an insubstantial part of such activities are in furtherance of a non-exempt purpose in contravention of internal_revenue_code sections’ c and c b c part of its net_earnings inured to the benefit of any private_shareholder_or_individual in contravention of internal_revenue_code sections’ c and c b and d it is operated for the purpose of serving private rather than public interests in contravention of internal_revenue_code sections’ c and c b form 886-a rrev department of the treasury - internal_revenue_service page -1- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx org i statement of facts a general background information formation of org a origins org org began operating as co-1 on january 19xx it offered credit restoration services and debt consolidation to residents of southern state as business expanded org was created specializing in debt consolidation b entity type org was formed on april 19xx in the state of state as a non-profit corporation pursuant to chapter of the state statutes ’ the initial articles of incorporation provide that the purpose of org is to conduct financial consulting services as its principal activity c principal_place_of_business org’s principal_place_of_business where such financial consulting service activities were initially conducted was address city state later org relocated to address city state org’s current address is address city state d incorporators the names and addresses of the incorporators initial directors are listed below name president co-chairman and registered agent address city state dir-1 co-chairman address city state address address city state address city state dir-2 director dir-3 esq director kok the application process for exemption under irc c ok ok ' the original name is org but the word was subsequently corrected on may 19xx form 886-a crev department of the treasury - internal_revenue_service page -2- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx a submission of exemption application org submitted form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code to the internal_revenue_service irs employment plans exempt_organizations division now known as tax exempt government entities division city key district_office in city state the application was signed by president as director of org and was received by the irs on june 19xx b proposed primary activities org sought exemption from federal_income_tax under internal_revenue_code sec_501 as _an organization proposing to provide credit counseling and debt consolidation services to the general_public org submitted a more detailed description of such proposed activities as attachment to its form_1023 application which provides a org is dedicated to helping individuals who are experiencing financial difficulties the corporation’s main service will consist of bill consolidation this program is targeted to individuals with unsecured debt that has become unmanageable our focus is to consolidate these bills by lowering monthly payment commitments generally participants in this program will realize a savings of on a monthly basis through a system of negotiations with their creditors advantages to participants of the debt management program are as follows lower more affordable monthly payment sec_2 re-aging of past due accounts to a current status thus having a positive effect on the client’s credit rating lowering or even waiving in certain situations all interest and penalty assessments the development of a family budget in addition the agency offers other services consisting of investment counseling courses a quarterly newsletter with information on consisting of financial information to health tips the agency also will operate a financial consulting hot line which clients may call and receive expert advice on the use of income in the course of everyday life additionally the agency will administer a scholarship program based on need b the above referenced activities will be initiated starting in the fall of 19xx c activities will be conducted in city and counties in the state of state initially operated duties will be conducted by the members of the board_of directors until a full- time staff cam be put in place c proposed secondary activity form 886-arev page -3- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx ' org pursuant to attachment iii of its form_1023 application org also proposed to provide scholarship grants to students the dollar amount of the scholarship will be determined by the board_of directors the amount of the scholarship will directly correlate with the fund raising activities of the organization the board_of directors expect to grant scholarships in the amount of at least dollar_figure to be considered for a scholarship the candidate must have maintained a cumulative grade point average of on a scale of to in their primary education in addition an investigation into the candidates financial affairs will be performed to coincide with the programs requirements that the scholarship be based on need d qualifying as a publicly_supported_organization with respect to foundation status org provided that it was not a private_foundation because it qualified as a publicly_supported_organization under internal_revenue_code section' sec_509 and sec_170 to qualify as a publicly_supported_organization org indicated that its sources of financial support would consist of corporate contributions and financial grants org also stated that a third source of revenue would be a service fee assessed to individuals participating in its debt management program up front one-time fee will be charged to participants in the debt a small flat management program this fee will cover processing costs that are associated with activating the client's file in the debt management program an additional fee of dollar_figure will be assessed each month to the participants enrolled in the program this monthly fee will cover the cost of the financial consulting hot line investment counseling courses on family budgeting and a quarterly newsletter that will be forwarded to each participant in the program e irs correspondence during the exemption application process on july 19xx the irs returned org’s form_1023 application_for the following reasons q q org did not submit a conformed copy of its articles of incorporation org did not submit a copy of its bylaws a follow-up letter dated july 19xx the irs requested org to amend its articles of in incorporation to meet the organizational_test of sec_1 c - b in response to the july letter org amended its articles of incorporation on august 19xx by added the following provision as article viii form 886-a mev department of the treasury - internal_revenue_service page -4- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx org the purposes for which the corporation is organized are exclusively religious a charitable scientific literary and educational within the meaning of sec_501 of the internal_revenue_code_of_1986 or the corresponding provision of any future united_states internal revenue law b notwithstanding any other provision of these articles this organization shall not carry on any activities not permitted to be carried on by an organization exempt from federal_income_tax under sec_501 of the internal revue code of or the corresponding provision of any future united_states internal revenue law c upon dissolution of the organization assets shall be distributed for one or more exempt purposes within the meaning of sec_501 of the internal_revenue_code_of_1986 or corresponding section of any future federal tax code or shall be distributed to the federal state_or_local_government for a public purpose any such assets not so disposed of shall be disposed of by the court of common pleas of the county in which the principal office of the organization is then located exclusively for such purposes recognition of exemption under c a advanced rulin in exemption ruling letter dated september 19xx the irs advised org that it is exempt from federal_income_tax under internal_revenue_code sec_501 as an organization described in internal_revenue_code sec_509 and will be treated as such during the advanced ruling period b confirmation of status as a publicly_supported_organization after the end of the advanced ruling period the irs issued foundation status letter dated may 19xx stating that based on information received org is not a private_foundation within the meaning of sec_509 subsequent changes to the articles of incorporation on january 19xx org amended and restated its articles of incorporation the purposes for which org was organized are as follows the purposes of the corporation are to operate exclusively as a charitable corporation within the meaning of sec_501 of the internal_revenue_code_of_1986 as amended or corresponding provisions of any later federal tax laws the code by providing assistance to individuals who are experiencing financial and -debt-related difficulties in furtherance of such purposes the corporation may inter alia provide i bill consolidation services ii counselling on credit and budget matters and iii a newsletter on financial related issues the corporation may engage in any lawful activity or transact any lawful business for which corporations may be incorporated under the state not-for-profit corporation act not inconsistent with those exercisable by a corporation in conformance with sec_501 of the code moreover all form 886-acrev department of the treasury - internal_revenue_service page -5- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx org funds of the corporation and any monies from its operations shall be used in the jurtherance of the purposes set forth above and no benefits shall inure to any private parties except benefits incidental to the purposes and objectives of the corporation all powers exercised herein shall be in furtherance of the purposes set forth above and shall at times be in conformance with the provisions of sec_501 of the code tax_year under examination org a fiscal_year taxpayer whose fiscal_year ends june files annually a form_990 return of an organization exempt from income_tax under sec_501 their form_990 is under the examination jurisdiction of the irs tax exempt government entities division mid-atlantic area the year under examination and at issue herein is the fiscal_year ended june 20xx b background information on the consumer credit counseling industry exemption status of credit counseling organizations the irs recognized a credit counseling agency open to the general_public as exempt under internal_revenue_code sec_501 in revrul_65_299 1965_2_cb_165 the agency was incorporated as a nonprofit corporation to assist families and individuals with financial problems and to help reduce the incidence of personal bankruptcy the agency was recognized as exempt under sec_501 because it q q q q q q q a q did not limit its services to those in need of such assistance as proper recipients of charity employed specialists to interview applicants analyze the specific problems involved and counsel applicants on the payment of their debts arranged a monthly distribution to creditors based on the debtor's ability to pay communicated with creditors and with the creditors’ consent set up plans which debtors agreed to follow made its facilities available for debtors to make their monthly pro_rata distributions to creditors made no loans to applicants nor negotiated loans on their behalf charged nominal fees to cover postage and supplies for its monthly prorating services charged no fees for the counseling service and relied upon voluntary contributions from local businesses lending agencies and labor unions to cover its costs of operations form 886-a cev department of the treasury - internal_revenue_service page -6- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx org the irs determined that certain credit counseling organizations might meet the by requirements of internal_revenue_code sec_501 because of their charitable or educational work in revrul_69_441 1969_2_cb_115 a credit counseling agency was recognized as exempt under internal_revenue_code sec_501 this agency limited its services to low-income individuals and families with financial problems its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions to qualify for exemption under internal_revenue_code sec_501 the agency q q q_ provided educational information to the general_public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications assisted low-income individuals and families with financial problems by providing them with individual counseling and if necessary by establishing budget plans serviced the budget plan by allowing the debtor to voluntarily make fixed payments through the agency holding the funds in partial payment basis to the creditors whose approval was obtained in advance a_trust account and disbursing the funds on a q made no loans to debtors or negotiated loans on their behalf q a charged no fees for counseling services or proration services - the debtor received full credit against his her debts for all amounts paid and relied upon voluntary contributions organization's budget plans for its support primarily from the creditors participating in the the irs distinguished the facts in this ruling from the facts in revrul_65_299 that held the organization was exempt under internal_revenue_code sec_501 q qo the agency in revrul_65_299 was not engaged in any educational activities the agency in revrul_65_299 did not limit its assistance to a charitable_class -- families or individuals in need of such assistance as proper recipients of charity in the 1970s the courts held that a credit_counseling_organization may be exempt from federal_income_tax even if it does not limit its clientele to low income individuals where the services provided by the organization are educational in nature by ruling so the courts reversed the irs in its revocation of the exempt status of two organizations that provided credit counseling but did not limit their services to low-income individuals form 886-a qev department of the treasury - internal_revenue_service page -7- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org the co-2 and the co-3 agencies were umbrella organizations made up of numerous individual co-3 both had been recognized as exempt under internal_revenue_code sec_501 and the activities of both organizations were similar as follows q q q q the agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit the agencies also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families but did not limit these services to low- income individuals and families the agencies charged a nominal fee of up to dollar_figure per month for some of their services but waived the fee in instances where payment would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the co-4 an incidental amount of their revenue was from the counseling fees this was consistent with the fact that only percent of the professional counselors’ time was spent on debt management programs as opposed to education the balance of time was devoted to the educational programs q the agencies were controlled by a community board_of directors the boards were required to have at least a percent representation of the general_public g the agencies were not controlled by or the captive of any creditor in relying on revenue rulings and the irs notified the agencies that it had made a mistake and was reclassifying them under internal_revenue_code sec_501 what followed are two pivotal declaratory_judgment sec_7428 cases co-2 of alabama v united_states u s t c d d c and co-3 of oklahoma inc v united_states u s t c d d c the law does not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under internal_revenue_code sec_501 organizations may be properly designated under internal_revenue_code sec_501 notwithstanding the fact that the general_public is served nonetheless the agencies do not charge a fee for the programs that constitute their principal activities a fee may be charged for a service that is an incidental part of an agency's function but even where a fee is so charged it is nominal moreover even this nominal fee is waived where payment would work a financial hardship problems in the industry form 886-a crev department of the treasury - internal_revenue_service page -8- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org the consumer credit counseling industry arose as a means of assisting individuals to pay their credit card debt without resorting to bankruptcy and a means of enabling creditors to collect debt that otherwise would be discharged in bankruptcy through the 1980s the industry was financially supported almost entirely by creditors which returned to the industry approximately of the money they received through the efforts of the industry over the last decade however the industry has changed significantly responding to the dramatic increase in credit card debt a new generation of credit counseling agencies arose these new credit counseling agencies pioneered more business-like methods of making debt management plans convenient for consumers including flexible hours phone and internet counseling and electronic payments as the newer agencies have gained market share a number of serious problems have surfaced as well a report of two prominent consumer organizations co-5 and the co-6 has documented the situation the problems include q q provision of only debt management plans aggressive sometimes deceptive marketing practices and selling techniques concerning the nature of the need for and the cost of debt-management plans q_ lack of face-to-face or individualized contact with consumers q q excessive cost to consumers and undisclosed related_party transactions these problems are compounded by a drastic reduction in support for the industry by its traditional benefactors the issuers of credit cards this has led counseling agencies to impose on consumers an increasing share of the cost of their operations involvement of the federal trade commission in response to the problems in the consumer credit counseling industry the federal trade commission interceded through law enforcement and educational efforts to protect consumers from unfair or deceptive acts or practices that are in or affect commerce in commission testimony submitted before the senate committee on governmental affairs the permanent subcommittee on investigations ftc commissioner thomas leary cautioned that some companies use their non-profit status as a badge of trustworthiness to attract customers who _ are then duped into paying large fees those fees are sometimes funneled to for-profit companies wk kek kek ok prepared statement of the federal trade commission on consumer protection issues in the credit counseling industry presented by commissioner thomas b leary before the permanent subcommittee on investigations of the committee on governmental affairs united_states senate march 20x x department of the treasury - internal_revenue_service form 886-acrev page -9- department of the treasury - internal_revenue_service schedule no or exhibit form 886a explanation of items name of taxpayer year period ended june 20xx org leary explained that instead of teaching consumers about their finances and how to manage debt as it promised some credit counseling organizations indiscriminately enroll their clients in debt of debt management plans without regard to management - under which consumers pay debt managers who then pay their creditors - can be beneficial for some consumers but not for all along with these changes in the industry have come complaints about troubling practices including possible deception about the services offered poor administration of dmps and undisclosed fees associated with dmps leary said their particular financial situation this kind leary stated that the ftc’s greatest concern is deception by credit counseling organizations about the nature and costs of their services including the following practices q q q failure to pay creditors in a timely manner or at all some credit counseling agencies that offer debt management plans may fail to pay creditors in a timely fashion or at all this can result in serious consumer harm such as late fees that the creditors impose promises of results that cannot be delivered some agencies promise that they will lower consumers’ interest rates monthly payments or overall debt by an unrealistic amount some also make false promises to eliminate accurate negative information from consumers’ credit reports failure to abide by telemarketing laws to the extent that these agencies are not bona_fide non-profit organizations they must comply with the ftc’s telemarketing sales rule including the national do-not-call registry internal_revenue_service compliance project’ irs officials also became concerned that some credit counseling organizations that might have qualified for exemption status in the past may no longer qualify due to changes in the services they provide this problem is magnified because the organizations by reason of their tax exemption are exempted from many state and federal consumer protections credit repair for example the credit repair organization act of sought to further regulate the practice of a series of activities aimed at improving a for-profit organizations involved in customer's credit history but the act excluded credit counseling organizations exempt under internal revenue sec_501 from the provisions of this law a similar pattern of exceptions for tax-exempt organizations is replicated in many state consumer laws the irs is concerned that the combination of tax-exempt status and exemption from consumer to address this concern the exempt protections may leave certain taxpayers vulnerable organizations office of the irs initiated a compliance project to address concerns in this area x kk ke irs takes steps to ensure credit counseling organizations comply with requirements for tax-exempt status internal_revenue_service newswire fs-20xx-17 october 20xx website department of the treasury - internal_revenue_service form 886-a crev page -10- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx c financial statements and data appointment of independent auditor city state to audit org's org appointed co-7 an independent accounting firm based in statements of activities financial position and cash flows and to prepare its form_990 information_return and the accompanying schedules and statements for the fiscal years ending june 20xx 20xx 20xx and 20xx its report co-7 stated that the audits were conducted in accordance with auditing standards in generally accepted in the united_states and that the financial statements referred to above presented fairly in all material respects the financial position of org as of june 20xx 20xx 20xx and 20xx and the results from its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the united_states significant accounting policies a financial reporting the financial statements of org have been prepared on n receipts are recognized as revenues when earned and expenses are recorded when incurred the accrual basis of accounting where b fiscal_year end org s fiscal_year end is june summary results from operations the summary results from operations for the year ended june 20xx are provided in table below form_990 - summary statement of revenue expenses excess for the year table revenue expenses excess for the year net assets or fund balances july 20xx other changes in net assets or fund balances net assets or fund balances june 20xx analysis of revenues a two primary sources of income during the year under examination org received substantially_all of its revenues from two sources fairshare income and membership dues as provided in table below org describes fairshare income as revenues derived from their provision of debt adjustment services the cost of which is form 886-a crev department of the treasury - internal_revenue_service page -11- form_886 a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer explanation of items org supported by contributions from the creditor community and membership dues in contrast income in org’s debt from membership dues are revenues derived from consumers participating management program org states that the fees are based on need but are otherwise mandatory in order to participate to participate in the program table form_990 - sources of revenues revenue fairshare income debt management fees interest on savings and temporary cash investments dividends and interest from securities total revenue total of revenues b trends in revenue from fair share and debt management fees table shows org’s sources of revenues for the five-year period ending in fiscal_year june 20xx revenue fair share income debt management fees interest on savings dividends and interest total revenue table form_990 - sources of revenues 30-jun 19xx 30-jun 20xx 30-jun 20xx 30-jun 20xx 30-jun 20xx in glancing at the data in table revenues from fair share and debt management fees have both increased steadfastly and sequentially a true measure of revenue growth however is to express each source of revenue as a percentage of total revenue using the formulas provided in table below formulas revenues from fair share and debt management fees as a percentage of total revenue table fair share income total revenue debt management fees total revenue these formulas indicate how income from fair share and debt management fees are changing relative to changes in total revenue as total revenue increases it might be expected that income from fair share and debt management fees would increase proportionately therefore the level of income from fair share and debt management fees should at least remain constant in real terms imustration income from fair share and debt management fees as a of total revenue form 886-aev department of the treasury - internal_revenue_service page -12- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org table deleted as the graph in illustration above indicates two distinct trends are evident first revenue from fair share as a percentage of total revenue between 19xx and 20xx has declined from nearly percent in fiscal_year 19xx to nearly percent in fiscal_year 20xx as provided in table below this trend reflects the industry-wide creditor reduction of percentages paid to the credit counseling agencies the result today is an average fair share contribution of only about six percent or about a sixty percent reduction over the past seven years ‘ table ratio of fairshare income to total revenue for the years ended june ratio of fairshare income to total revenue 19xx 20xx 20xx 20xx 20xx the second trend evident during the five year period is the growth of debt management fees as a percentage of total revenue from approximately percent in 19xx to approximately percent by 20xx as provided in table below and depicted in illustration above according to the testimony of dir-4 the effect of reduced fair share support has been twofold to survive credit counseling agencies have had to reduce traditional services or they have had to pass more of the costs for providing services on to consumers or both more recently creditors have increasingly recognized that agencies which emphasize debt management plans and charge excessive fees are not operating in the best interests of either consumers or creditors and have terminated fair share contributions for such agencies table ratio of debt management fees for the years ended june ratio of debt management fees to total revenue 19xx 20xx 20xx 20xx 20xx these trends have led org to shift its operationally dependency from fair share income to debt management fees to maintain existing service levels org raised fees and hired additional credit counselors to respond to inquiries from the general_public regarding debt relief breakdown of expenses kk kek kek ok ‘ non-profit credit counseling organizations hearing before the subcommittee on oversight of the committee on ways and means congress session 20xx statement of dir-4 president co-8 form 886-ackev department of the treasury - internal_revenue_service page -13- form 886a department of the treasury - intemal revenue service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org table below sets forth org’s statement of functional expenses as filed with the irs table below sets forth the changes in expenses from the fiscal_year ending june 20xx to the fiscal_year ending june 20xx for each fiscal_year the table also expresses each expense item as a percentage of total revenue description of certain expenses a public awareness as shown below for the fiscal_year ending june 20xx org reported dollar_figure in public awareness expense this expense category represents the advertising or marketing efforts of org to utilize various media outlets in reaching out to consumers that are‘concerned over their personal finances org provides that its main goal of its public awareness efforts is to attract the most debtors with poor credit management habits and attempt to modify their behavior with education and counseling b education expense as shown below org reported dollar_figure payments to co-9 a related_entity in exchange for the fees produced publications for org such as org’s monthly newsletters management in education expense of which approximately dollar_figure represents and a book on debt c client support in january 19xx org outsourced its back office administrative operations to an organization named co-10 the founder and sole owner of co-10 is president founder president and for the chairman of org for the administrative services it provided fiscal_year ended june 20xx org paid co-10 dollar_figure statement of financial position table below sets forth org’s statement of financial position as of june 20xx description of certain assets a other assets as of june 20xx this asset category is comprised of the following items notes amount item description cash restricted security deposits division line acquisition net life_insurance plans prepaid expenses employee advances total form 886-a cev department of the treasury - internal_revenue_service page -14- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items a restricted cash represents the funds of clients held in escrow for the payment of unsecured debt b land building equipment leasehold improvements represent improvements org made to the property it leases leasehold improvements are capitalized and depreciated over its useful_life cost or other basis accumulated depreciation book vatue description leasehold improvements leasehold improvements leasehold improvements leasehold improvements leasehold improvements date acquired 01-01-19xx 01-01-19xx 01-01-20xx 06-15-20xx 07-01-20xx table form_990 statement of functional expenses for the year ended june 20xx program services ment general other salaries and ae ae taxes legal fees ral occupan printing and publications depreciation depletion other expenses itemize amortization expense a vehicle expense department of the treasury - internal_revenue_service form 886-a crev page -15- fom 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer explanation of items org -- fees client a a bad_debts tabie percentage change in expenditures_for the year ending june ion 20xx 20xx other salaries and we g es i a legal fees a and at depreciation depletion amortization i vehicle aor charitable donations -_ insurance consulting fees client support bad_debts rr ee form 886-a rev department of the treasury - internal_revenue_service page -16- fom 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org denotes of total revenue denotes change from 20xx to 20xx fable statement of financial position as of june assets 20xx 20xx 20xx savings and tem cash investment sec_48 pledges receivable receivables from officers directors trustees and key emplo inventories for sale or use investments - securitie sec_56 investments - other other assets liabilitie sec_61 grants payable loans from officers directors trustees and key emplo other liabilities net assets or fund balances form 886-aev department of the treasury - internal_revenue_service page -17- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx a restricted capital stock trust principal or current funds description of liabilities as of june 20xx the liability category is comprised of the following items item description notes amount client funds in escrow reserve for member incentive program a b a other liabilities - client funds in escrow client funds in escrow is reserved cash held in escrow for the payment of unsecured debt b other liabilities - reserve for membership incentive program reserve for member incentives is comprised of membership incentives programs as follows a membership fulfillment program and two under the membership fulfillment program org will the membership fees paid_by any client member who completes the debt management program to qualify a client member must complete the program without making any late payments org has reserved approximately dollar_figure as of june 20xx portion return of a under the first membership incentive program any client member is eligible to receive dollar_figure for each person who becomes a new client member of org as of june 20xx org has reserved approximately dollar_figure for such program under the second membership incentive program any client member who successfully refers eight as new client members is eligible to receive an even greater monetary reward org has reserved approximately dollar_figure as of june 20xx d officers directors and key_employee sec_1 officers and key employees of org the names and addresses of the officers and the key employees of org are listed below form 886-aev department of the treasury - internal_revenue_service page -18- form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer org explanation of items officers and key employees president vice president secretary dof dots dobd does title president director vice-president director of marketing secretary treasurer director of finance director of trust services director of business development director of education services president is the founder president and chairman of org president graduated from the co- with a masters degree in business administration and received his bachelor of science degree in accounting from co-12 president is a certified_public_accountant a certified credit counselor and a financial expert on consumer credit personal financial planning and tax strategies as well as specializing in both private consumer debt law and irs practices and procedures president is currently a board member of the co-13 he has been the past president and vice- president of the co-8 co-8 a national trade_association representing the consumer credit industry president also controls co-10 co-1 co-9 co-14 co-15 and co-16 -- entities that are engaged in related_party transaction with org vice president is vice-president of org and is director of marketing vice president has been employed by org for over a decade and is responsible for operations marketing policies hiring and training of credit counselors vice president received a dual degree finance and marketing from co-12 in 20xx vice president was elected as the vice president for the co-8 co-8 vice president's past experience includes working as a financial analyst for co-17 he also performed tax business and financial planning for the owners of large private corporations immediately prior to joining org he was a territory manager for co-18 state secretary is secretary treasurer director of finance university in 19xx with a bachelors of science degree in accounting as director of finance secretary was responsible for the preparation and analysis of financial statements payroll and benefits accounts_receivable accounts_payable state and federal tax and license compliance systems design improvement and analysis and all the financial reporting and responsibilities of several related companies secretary graduated from state key employees include dof who is the director of finance prior to joining org dof was the cfo for co-19 and co-20 where he was responsible for the financial and administrative functions of the companies as well as preparation of the business plan and financial projections dof has a bachelor of commerce degree and a postgraduate accounting degree for the co-21 country he is also a certified_public_accountant and a chartered accountant form 886-aev department of the treasury - internal_revenue_service page -19- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org another key_employee is dots the director of trust services as the director of trust services dots is responsible for the security maintenance and upkeep of trust account his department assures that all funds received and disbursed through the client's trust account are reconciled and that all payments made to creditors on the clients’ behalf are accurate and timely he has over years of accounting and finance experience prior to joining org's team he was the controller for a large city based corporation for years he received his accounting degree from the co-22 a third key_employee is dobd as the director of business development dobd’s responsibilities include developing strategic partnership alliances and orchestrating community outreach projects dobd serves as chairman of the local advisory committee of the fannie_mae mortgage finance program which develops pilot programs aimed at increasing the minority participation in the mortgage finance industry he also is the former chairman of the southeast state chapter of the state bankers association and is vice-president and treasurer of the co-23 dobd has a masters in business administration and bachelors of arts degree in psychology co-24 city state in addition does writes and edits the org quarterly client newsletter news-1 does’ prior employment includes working as the promotions and public relations manager for a travel and event firm and counseling employees on 401k and ira accounts at co-35 does received her bachelors of science degree in mass communication from co-34 a fourth key_employee is does who is the director of educational_services does develops surveys and polls to collect data concerning consumers’ financial needs and uses the survey results to develop promotional material and community outreach programs topics developed have included budgeting getting out of debt for good credit management - what you need to know and acquiring smart spending habits does promotional efforts have been published in the co-25 co-26 co-27 co-28 the co-29 co-30 co-31 co-32 co-33 and other publications the names and addresses of the individuals that comprised the board_of directors of org for the year ended june 20xx are as follows board_of directors president chair org’s board_of directors address city state address city state address city state address city state dir-8 director dir-7 director dir-5 director address dir-5 is an alumna of co-12 where she received her bachelors of arts degree in politics and a juris doctor degree in law as a law student dir-5 participated in the appellate advocacy program department of the treasury - internal_revenue_service form 886-a ev page -20- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org at co-12 where she interviewed appellants prepared briefs and represented clients throughout the appeals process including oral arguments before the state and the district of country courts since real_estate and then dir-5 has practiced law specializing in general commercial litigation corporate law dir-7 is a graduate of the university of state city where he earned a bachelors of arts degree in politics and a masters of science degree in technology management and government entrepreneurship dir-7 is president and co-founder of co-36 and has over years experience providing strategic business consulting and technical project management services to technology- based businesses and the federal government recently org selected co-36 to manage the expansion of its national call center dir-8 has a bba and an mba degree both from the co-11 since 19xx dir-8 has been vice- president of co-37 a company that runs nursing homes as well as chief_executive_officer of co-38 a healthcare facility organization duties and responsibilities of the board_of directors of org of the bylaws stipulates that all corporate powers shail be exercised by or under the article ill authority of the board_of directors in addition the business and affairs of org shall be managed by the board_of directors in performing his or her duties a director shall be entitled to rely on information opinions reports or statements including financial statements and other financial data in each case prepared by or presented by qo q one or more officers or employees of org whom the director reasonably believes to be reliable and competent in the matters presented counsel public accountants or other persons as to matters which a director reasonably believes to be within such persons professional or expert competence or acommittee of the board_of directors upon which he or she does not serve duly designated in accordance with a provision of the articles of incorporation or these bylaws as to matters within its designated authority which committee the director reasonable believes to merit confidence minutes of the board_of director meetings org provided the examining revenue_agent general minutes of the board_of director meetings for the period january 20xx to december 20xx the matters discussed before the board_of directors consisted primarily of the election of directors and officers compensation of officers directors and key employees a compensation per form_990 form 886-a ev department of the treasury - internal_revenue_service page -21- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org the compensation paid to officers and key employees for the fiscal_year ended june 20xx is set forth below employee title category compensation president president director vice president vice-president secretary secretary treasurer officer officer officer dots dobd director of business development director of education services credit counselor supervisor director of trust services key_employee key_employee key_employee key_employee does dir-9 all officers and key employees are full-time employees of org all outside directors provide their services on a voluntary basis and as such are not compensated for acting as a director during fiscal_year 20xx each director received a dollar_figure expense reimbursement to cover any expenses_incurred in acting as a director b bonuses compensation is divided into a salary portion and a bonus portion org provides that the bonus portion is set at a significant level so as to be a continual incentive to the employee to work hard and add value to org the bonus portion is split into four quarterly amounts each quarter january april july and october the employee’s performance for the prior quarter is reviewed for the year ended december 20xx the salary and bonus paid to officers and key employees are as follows employee title salary bonus president president director vice president vice-president secretary secretary treasurer dobd director of business development director of trust services director of accounting dots dof c automobile allowance org gives the officers and key employees named below an automobile allowance called auto expense reimbursement allowance’ to cover all use of private vehicles for company vehicles during calendar_year 20xx form 886-a gev department of the treasury - internal_revenue_service page -22- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org auto employee allowance president vice president dobd secretary dots dof in response to idr org-017 org provides that senior employees receive a standard auto limit estimated to equate to the reimbursement amount each pay_period the amount was set at a employees average estimated bi-weekly business mileage incurred on behalf of org multiplied by irs employees were not required to provide the standard mileage rate approved by substantiation for the actual business mileage incurred on behalf of the org the e the activities of org operating as an inbound telemarketing call center a inbound telemarketing call center described during the fiscal_year ended june 20xx org operated an inbound telemarketing call center staffed with credit counselors an inbound telemarketing call originates with the respondents callers such calls are made in response to a marketing offer directed via print radio or other media sources the respondents generally contact the call center by phone to ask for help in furtherance of its exempt_purpose org operated the call center staffed with credit counselors to enroll callers in its debt management program provide financial counseling to individuals that are experiencing financial and debt-related difficulties and to disseminate self-help booklets to any caller interested in topics related to financial and debt management in response to idr org-002 org provided that during calendar_year 20xx the number and title of call center employees were as follows b purpose for which the call center is operated c call center team credit counseling manager form 886-a crev job classification number of employees number of employees jan 20xx dec 20xx credit counseling supervisor department of the treasury - internal_revenue_service page -23- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx credit counselors ee internet specialists d accreditation of counselors during the year ended june 20xx org employed _ counselors of which approximately percent were certified by a third party organization as shown below number percentage total certified counselors ae counselors not yet required to be certified counselors in certification training counselors who resigned prior to training coe i total _ e protocols for providing education counseling and debt management services prior to the start of the examination the examining revenue_agent issued idr org-002 which asked for among other items all versions of scripts and or job aids utilized by or available to your staff for any client contact during fye 20xx fye 20xx scripts job aids materials unavailable in response to the irs request org stated that it no longer maintained the scripts job aids employed by its credit counselors during the year under examination because it believes such materials to be outdated instead org provided the irs with the most recent version may 20xx of protocol and training materials employed by its credit counselors in compliance with the irs request fye 20xx standard protocol for telephone counseling and qualifying session org’s standard protocol for telephone counseling is broken down into the following components greeting qualify presentation application process and approval i greeting phase during the greeting phase credit counselors are instructed to establish rapport with the caller and take the following actions form 886-acev department of the treasury - internal_revenue_service page -24- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org q q a q q q a give the caller your name _ give the caller org’s name and a brief description of its background and activities provide personal financial education use the term credit counseling or debt management not just debt consolidation tell the caller org handles only unsecured debt tell the caller the service is for persons having difficulty with bills as opposed to only reducing interest rates no pressure org provides that this phase is used to determine whether the caller is interested in the debt management program or education ii qualify phase during the qualify phase credit counselors direct their efforts towards determining whether the caller would benefit from the debt management program and what type of education is required listening to the caller is emphasized during this phase the actions to be undertaken by the credit counselor include determining whether the caller has a financial need for the debt management program determining the type of education required computing the approximate amount of unsecured debt discussing the type of debts and the creditors involved determining the status of the debt payments determine if the debt management program is appropriate e e e e e e listen iii presentation phase preparation of debt to income analysis during the presentation phase credit counselors determine whether the caller qualified for the debt management program in furtherance of such goal the counselor performs the following functions q q q obtains the approximate amount of unsecured debt the caller owes obtains a description of the types of unsecured debt the calls owes determines the estimated payment and the total number of payments required to complete the debt management program reminds the caller that the payment amount is only an estimate based on the information the caller provided describes the benefits of the debt management program form 886-acrev department of the treasury - internal_revenue_service page -25- forn 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx a q a q ensures that the caller understands the difference between the debt management program and a loan presents all options to liquidate the debt including self assistance through education xplain the disadvantages of the debt management program inform the caller that all cards placed on the program will be closed inform the caller that he or she cannot obtain new credit cards while on the program explain the fees asks the caller if he or she has any more questions remind them that education is important and remind them to visit our website and q q nopressure no selling the estimated payment is determined by applying the specific percentage required by a creditor to the current debt balance although creditor requirements vary org instructs its counselors to apply the following percentages to approximate the payment percentage creditor most i lon most store and gas charge cards medical bills and other old accounts most unsecured loans -_ at this point org directs its credit counselors to ask if the caller has any questions if the counselor feels the caller is satisfied with the information comfortable with the program and program payment truly benefit from the program we can discuss the application process as in the and will presentation we will put no pressure on the caller to complete the application at this time and give the caller every opportunity to hang-up think about the information and call back if they are truly interested they will stay on the line or at worst call back at a more convenient time iv application phase during the application phase org provides the objective of counselors is to complete all the required fields in the software program with information that is accurate as possible in addition if the caller is hesitant or counselors are expected to gauge the comfort level of the caller uncomfortable counselors are instructed to try to determine the nature of the discomfort and provide the information that the caller may need to move forward if the caller remains hesitant instruct him or her to call you back when ready to join the program do nor sell v approval phase during the approval phase the credit counselor performs the following functions department of the treasury - internal_revenue_service form 886-aev page -26- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx a o a o o o o o o reviews the applicant's budget and list of creditors to insure that the caller has sufficient income to qualify for the program tells the caller that he or she qualifies for the program and will be receiving the agreement and related information for their review and signature assure the caller that no action will be taken until the signed agreement in receipt directs the applicant to the org web-site for additional information budgeting and related topics regarding the handling of financial situations applicants also are told that additional resources are made available only to members at no additional_charge discloses creditor donations discloses program fees reviews enrollment procedures and instruct caller to keep up with payments to creditors until payments start with program providing educational programs to the general_public n a educational activities ' its form_990 org provides that it created numerous educational programs for pursuant to individuals community groups and students ranging from the elementary to the collegiate level org claims that these programs were designed to allow participants to achieve economic rehabilitation and to educate the young about the proper use of credit b dissemination of educational publications to the general_public in furtherance of such goals org distributed self-help booklets org claims that such publications were designed to educate the general_public in topics such as budgeting techniques and how credit works dissemination of self-help booklets during the examination the irs obtained a sample of booklets educational in nature from org these booklets also are available at no cost to the walk-in public in the office lobby the booklet titles are as follows bk-1 bk-2 bk-3 bk-4 bk-5 bk-6 bk-7 bk-8 form 886-a rev department of the treasury - internal_revenue_service page -27- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org bk-9 bk-10 bk-11 bk-12 bk-13 bk-14 bk-15 bk-16 bk-17 org further provides that its self-help booklets were distributed to colleges and universities throughout the united_states dissemination of newsletters to client members pursuant to its educational program org disseminated newsletters educational in nature to those callers who became client-members by participating in its debt management program the org newsletter titled news-1 is issued quarterly and news-2 is mailed out monthly news-2 newsletter is published by a third party in city state dissemination of educational matter via web site the general_public also can access the self-help booklets on org’s web site free of charge dissemination of educational pamphlets to organizations it disseminated its educational materials to organization such hospitals org provides that associations and credit unions examples of org’s pamphlets are provided in illustration’ sec_3 - below dissemination of media releases org gives information regarding its services or debt in general to the north american precis syndicate naps who then distributes the information to over big_number newspapers big_number tv stations and big_number radio stations throughout the united_states then naps tracks the story to see how well it did and gives you the results illustration below sets forth below a january 20xx org media release by april 20xx naps claimed that the release generated newspapers articles in different states with a readership of big_number based on the fact that when placements are reported percent of the write-ins come from places from which there are no clippings in hand illustration graphs placements to date and circulation to date naps further provides that the release appeared in of the top markets of the top form 886-a rev department of the treasury - internal_revenue_service page -28- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org market appearance of don’t frown in debt release markets placements top markets - top markets top markets - _ __ _ dissemination of consumer awareness articles org provides that it developed numerous consumer awareness articles that were published in national magazines the published articles have titles such as artl-1 artl-2 artl-3 and artl- c carrying on of educational workshops seminars org contends that it conducted educational seminars for the general_public at its place of business during fiscal_year 20xx for instance org gave the examining revenue_agent pamphlets listing the workshops that were conducted as follows ws-1 ws-2 ws-3 ws-1 ws-2 workshop title date of workshop september 20xx october 20xx november 20xx december 20xx place of workshop place of business place of business place of business place of business january 2oxx place of business place of business place of business place of business place of business place of business february 20xx march 20xx april 20xx may 20xx june 20xx ws-3 ws-1 ws-2 ws-1 ws-3 that however org claims documentation of the completed workshops eg list of attendees advertisement etc was not maintained by org such workshops occurred monthly during 20xx fiscal_year org states that it also created and participated in joint educational programs with co-39 co-12 co-40 co-41 and co-42 ilustration illustration deleted illustration form 886-a rev department of the treasury - internal_revenue_service page -29- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org illustration deleted lilustration illustration deleted lilustration illustration deleted itlustration illustration deleted illustration illustration deleted f call center activities enrollment of consumers in the debt management program _one of the purposes for which the call center was operated is to enroll consumers in the debt management program of org debt management program described organizations that advertise credit counseling often arrange for consumers to pay debts through a debt management plan dmp in a dmp you deposit money each month with a credit_counseling_organization the organization uses these deposits to pay your credit card bills student loans medical bills or other unsecured debts according to a payment schedule they've worked out with you and your creditors creditors may agree to lower interest rates or waive certain fees if you are repaying through a dmp how the debt management program works pursuant to the org training manual the debt management program works as follows the debt management program is designed for individuals with unsecured debts that have become unmanageable secured debt such as morigages and car loans will not be accepted on the program the focus of the program is to consolidate these bills into one monthly payment lower monthly payment requirements from the creditors and negotiate lower interest rates generally members will realize savings of - on a monthly basis through our system of negotiation with their creditors department of the treasury - internal_revenue_service form 886-a crev page -30- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx once in the program a monthly payment is made to org this payment includes a monthly membership fee that varies from dollar_figure-dollar_figure based on client’s financial needs and amount of outstanding debt and the specific payment amounts to each creditor the client’s payment should arrive by their assigned due_date and will be disbursed to their creditors on the corresponding disbursal date the client will continue to receive statements from their creditors reflecting our payments and are requested to send them in quarterly for review it is the client’s responsibility to open their bills and to notify us if there are any discrepancies at which time we will contact the creditor s for resolution when the client is prepared to pay-off any or all of their accounts on the program our staff will assist them in obtaining the correct amounts and disbursing the funds to their creditors by means of our office upon proper completion of the program the client will receive completion materials that include a letter of recommendation and a handbook about regaining credit written by president lllustration below diagrams the flow of one org debt payment including the monthly fee to org from client-member to org before the specified_payment date after it takes out its monthly fee org disburses the balance to each creditor creditor’s in accordance with the program agreement after the payment is received each creditor issues a new billing statement representing the subsequent billing period to client-member each percent of the debt payment for collecting the debt on creditor also pays org a fee eg its behalf creditor on the other hand has chosen not to agree to terms of the debt consolidation arrangement therefore client-member must continue to pay his or her debt to creditor independent of the arrangement with creditor’s and and creditor will continue to issue its monthly billing statement to client-member until the debt is extinguished under the membership fulfillment program org will return a portion of the membership fees represented by the dashed line paid_by client-member if he or she completes the debt management program to qualify client-member must complete the program without making any late debt consolidation payments illustration q illustration deleted lower more affordable monthly payment advantages of the debt management program according to org the advantages of the program are as follows reduced or even eliminated interest and penalty charges no more harassing phone calls from creditors form 886-a crev q oq department of the treasury - internal_revenue_service page -31- form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx explanation of items year period ended name of taxpayer org q improves credit rating program service expenditures table below sets forth org’s program service expenditures_for the six year period ending june 20xx including the short_year ended june 19xx for the six year period expenses associated with the debt management program exceeded’ _ percent of the total amount expended for program services table program service expenses per form_990 31-dec 19xx 30-jun 19xx 30-jun 419xx 30-jun 20xx 30-jun 20xx 30-jun 20xx description debt management program dmp education program total dmp as a of total program service expense g client-member fees during the fiscal_year ended june 20xx org did not charge any caller any fee for any phone call it received fees however were assessed once a caller became a client-member by enrolling in the debt management program _ org charged its client-members an initial fee and a monthly fee the initial fee is a one-time charge that is assessed at the enrollment_date and can range between dollar_figure and dollar_figure the monthly fee however is charged during the entire length the client-member remains with the debt management program and that too can range from dollar_figure to dollar_figure how the fee is set debt management fees according to org both fees are dependent upon form 886-a crev q level of debt eg a smaller fee charged on smaller debts the following criteria state fee limitations for those states that have mandated fee limits co-8 co-8 code of practice which provides for an initial fee of dollar_figure to dollar_figure and a monthly fee of dollar_figure to dollar_figure - department of the treasury - internal_revenue_service page -32- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx q client-member’s financial position and ability to pay the fee membership fulfillment program under this program org will return a portion of the membership fees paid_by any client member who completes the debt management program to qualify a client member must complete ‘the program without making any late payments client-member terminations and completions in question of idr org-002 the examining revenue_agent asked org to specify for each of its program activities during fiscal_year 20xx the average for each the following a period of time an average client is estimated to take to complete each program b percentage of clients who successfully complete the program percentage of clients who cancel or drop-out of the program within months c d percentage of clients who cancel or drop-out of the program between months and e percentage of clients who cancel or drop-out of the program between months in response to a above org provided that for 20xx management program the average length these client-members were on the program was years iclient-members completed the debt in response to c through e above org provided the following statistics description percentage percentage of clients who withdrew from the program within months percentage of clients who withdrew from the program between months percentage of clients who withdrew from the program between months org provides that the withdrawals were due to completion or otherwise org’s relationship with co-8 co-8 is the credit counseling industry association as such it is a membership-based organization of which org is a member in addition the current org president vice president serves as co- 8’s vice-president furthermore president’s biography on org’s web site provides that he has been instrumental in the growth of the co-8 and is the past president of the co-8 and has held positions as the vice president and chairman of the client retention committee h call center activities provision of financial counseling education department of the treasury - internal_revenue_service page -33- form 886-a crev form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items org contends that it educates consumers that contact its call center either by phone or by walk-in it does not matter whether such consumers enroll in the debt management program org firmly believes that it educates all consumers that talk to its credit counselors electronic case file histories of inbound callers a __ percent of inbound calls are not documented vice president the former credit counseling manager stated that the software computer_software program in use during fiscal_year 20xx documented only the information of consumers that qualified for its debt management program viz client-members and leads where leads are consumers that qualified for but did not enroll in the debt management program based on his estimate vice president indicated that the software program recorded less than _ percent of all inbound phone calls made during the fiscal_year as a result org did not document more than __ percent of all inbound phone calls it received b remaining percent of inbound calls org provided all of the electronic case file histories compiled by seven credit counselors the seven counselors were selected based on their compensation the case file comments discuss administrative procedures undertaken as opposed to educational or counseling provided irs third party contact of former credit counselors a questionnaire submitted to former counselors former counselors were contacted by mail to ascertain the nature of and extent to which they educated and counseled callers the former counselors wrote that the objective of the job was to enroll consumers in the debt management program b phone interview of former counselors former counselors were contacted by phone to ascertain the nature of and extent to which they educated and counseled callers the former counselors stated unanimously that org’s objective was to enroll consumers in the debt management program moreover if education were provided to consumers it was due to the personal and professional experience of the counselor as opposed to any training provided by org i marketing strategy org conducts its business in ___ ‘states as an inbound telemarketing call center org does not permit its credit counselors to make outbound phone solicitations credit counselors may however return a phone call or even contact a caller who asked the counselor to contact him or her at a later time or at a later date therefore the success of its debt management program resides on the effectiveness and scale of its advertising campaigns form 886-a rev department of the treasury - internal_revenue_service page -34- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org public awareness campaign with respect to its overall marketing strategy org provides we can easily describe our overall strategy for utilizing various media outlets to further our main purpose of educating the public with regards to the assistance that is available for those experiencing financial difficulties of debt during fye 20xx a significant portion of our public awareness addressed the negative second television effects on announcements for anxiety hopelessness and how debt hurts everyone in a a family copies of the foregoing were previously provided the consumer org created separate each including depression fear of several issues the aim of the messages was to show that being in financial distress created negative financial and emotional consequences it is our hope that these announcements were equally informative to consumers who are in trouble with their debts as to consumers who are not in other words the announcements were designed as a deterrent against getting into trouble with debt and a message of encouragement for those in trouble to seek assistance is it these messages also addressed the negative effect of debt on the well-being of the consumer and his her family which is often not realized public awareness via radio and television is accomplished by purchasing low-cost remnant ad space in radio and television with an air time between seconds the main focus of org's internet site has always been to provide education to the consumer with free access fo all of our educational_services and products org's billboard advertisements reflecta’ debt theme to attract consumers in true financial need the main goal of our public awareness efforts is to attract the most debtors with poor credit management habits and attempt to modify their behavior with education and counseling formal advertising plan market research analysis of competition org does not have a formalized written marketing and or public awareness plan however a related_entity co-1 d b a co-1 co-1 assisted in producing and placing all contracted public awareness messages for org remuneration to co-1 for fiscal_year 20xx was dollar_figure org does not conduct formal market research directly or indirectly and does not conduct formal analysis of competition directly or indirectly measuring the effectiveness of the public awareness campaign in fiscal_year 20xx org’s phone system was not capable of providing detailed call reports by media source as a result public awareness was tracked by market based on the consumer's zip form 886-acev department of the treasury - internal_revenue_service page -35- department of the treasury - internal_revenue_service schedule no or exhibit form 886a explanation of items name of taxpayer org year period ended june 20xx code using this tracking method however permits org to record the zip codes of only the callers that qualify for its debt management program for printed material the effectiveness of public awareness was tracked by publication for instance when consumers called credit counselors would inquire about the location the org message was heard or seen like the prior method org records the publication source of only the callers that qualify for its debt management program org states that it no longer possesses any old reports for fiscal_year 20xx however based on a current blank media analysis template the following measurements were tracked for each market and for each type of media total cost of applications of clients cost application cost client ratio of clients to application the effectiveness of org’s public awareness activities is determined by the volume of counseling activity generated determination of target markets org chooses its markets based primarily on where it is able to advertise at a cost that meets our budget sensitive financial criterion for that medium shape of the marketing message when asked how it shaped its message org responded org tailors its public awareness campaigns to capture the attention of debtors who are having financial difficulties our messages are designed to make consumers aware of the availability of our services as well as make people aware of the dangers of getting in trouble with debt we have several varying messages however we air messages a minimum of big_number times per month that makes no mention of a debt management program it only informs the public about free educational resources available from our organization _ use of various marketing mediums org provides that it selects the most appropriate public awareness medium taking into account the geographic areas and mix of mediums for fiscal_year 20xx org used the following mediums department of the treasury - internal_revenue_service form 886-a eev page -36- forn 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer explanation of items org general ledger acct no description of medium expense yellow pages billboard sec_6015 radio tv internet advertising - other examples of advertisements found in various publications in the information documents requests listed below the examining revenue_agent obtained from org copies of advertisements and the invoices associated with such advertisements it placed in various publications o o idr org-037 co-43 idr org-038 co-44 co-45 idr org-041 co-44 idr org-049 co-46s e ad in co-43 - co-47 ad deleted publication co-47 issue september 20xx circulation big_number size of ad page color - vertical total due dollar_figure placement service co-1 client org deadline may 20xx f adin co-44 c0-48 ad deleted publication co-48 issue february 20xx circulation big_number size of ad page color - vertical total due dollar_figure placement service co-1 client org department of the treasury - internal_revenue_service form 886-acev page -37- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org deadline november 20xx g ad in co-44 - co-33 ad deleted publication co-33 issue december 20xx circulation big_number size of ad page color - vertical total due dollar_figure placement service co-1 client org deadline september 20xx h ad in co-46s - co-49 ad deleted publication co-49 issue august 20xx september 20xx october 20xx january 20xx february 20xx april 20xx may 20xx june 20xx circulation size of ad total due placement service co-1 client org deadline j credit counselor sec_1 duties and responsibilities according to the job description org provided to the examining revenue_agent the primary responsibility of credit counselors is to receive inbound phone calls from across the country the description also stated that the calls are made by consumers in various stages of debt payment distress and that credit counselors help such consumers improve the quality of their lives through debt consolidation and financial education - the job also is described as follows form 886-a crev department of the treasury - internal_revenue_service page -38- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items a o o o o o o o o o o q customer service minded person who enjoys talking over the phone and helping them by providing sound financial advice and counseling receiving approximately incoming call per day gathering information about customers financial issues determining debt obligations by interviewing clients examining bills and payment schedules determining financial resources by examining income assets and expenses developing a financial plan for the client where necessary by reducing high-interest debt establishing priorities and a living expense budget while developing a debt management program for the client develops agreements with creditors on the client's behalf for lower monthly payments and providing community outreach and education regarding wise use of credit and other credit related topics candidates for the credit counselor position a applicants not specifically target credit counselors counselors org's employment advertisements do employed in other fields or social workers org provides that it looks for a variety of characteristics without regard for any previous credit counseling experience for instance org states that it searches for qualified applicants who have college degrees and significant business experience in related fields and who can empathize with a client's financial situation org further states that it looks for counselors with a stable work history demeanor good communication and listening skills b community volunteers org provides that it does not recruit community volunteers to perform counseling services as it believe that its core competency is highly specialized initial training a course title objective and curriculum of the initial training class is new counselor orientation and training org the course title provides that the goal of its training program is to ensure that counselors are proficient in their ability to assist clients in resolving their debt related issues through counseling and education org also states that course curriculum consists of an introduction and orientation to org and protocols for providing education counseling and debt management services to clients b content of the training manual department of the treasury - internal_revenue_service form 886-aev page -39- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx the text new counselors are given during the initial training is called org training manual the manuat’s table of content which is provided below summarizes the topics of learning table of contents chapter one introduction to credit counseling a b introduction industry based training credit cards and what you need to know - cbt bk-9 - cbt chapter two org inc qo o o o o q quality statement history of the company organizational staff brief bio’s client creditor community relations affiliated companies you can make a difference chapter three products and services a d o o o a n o o g o o n o o o o p v o o o q key words how our program works advantages of the program flow chart life cycle of an account steps to enroll membership agreement and sample sample client letters welcome and initial payment payment methods auto-pay advantages sample acquisition a guide to due dates and disbursals gold membership rewards brochure partner companies and services rush card home savers legal club mortgage referrals and more soldiers and sailors benefit free education chapter four effective communication and telephone etiquette q o d a o o o o o o o effective communication telephone etiquette customer service basics common courtesy telephone tips handling an irate client use of the hold button focus on service avoiding negative statements department of the treasury - internal_revenue_service form 886-acev page -40- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx a q q ways to say thank you rules to customer service call model chapter five statement reconciliation q q a q a statement examples reading a statement what to look for updating statements statement problems cheat sheet for call-on statements chapter six systems qo phone systems - - software microsoft outlook right fax digital documents imaging scanning software chapter seven forms and procedures o o o o q o o o o g o o g n g n c g q a g a g c o o g n o o o g o o o o n o o c o a proposals accepted and declined digital edi proposal request program payment requests increase payment requests cashback request refund requests fairshare adding a creditor removing a creditor digital check status request rps payment inquiry form referrals digital creditor changes digital fund transfers payoffs letter request form sample letters reinstatements temporary closures lower payment request budget form post cards removing clients from mailing list changing account numbers legal procedures welcoming clients proofing files autopay cancellation revision procedures chapter eight stress management -cbt q q general info on stress top stressors in life form 886-acrev department of the treasury - internal_revenue_service page -41- department of the treasury - internal_revenue_service schedule no or exhibit form 886a year period ended june 20xx explanation of items name of taxpayer org q q q q good and bad stress stress and your immune system stress assessment coping behaviors checklist chapter nine job aides o o o o c o c q welcoming job aide retention job aide creditor concessions company contact info extensions and fax numbers affiliated co’s chart faq - credit bureau time zone chart frequently asked questions glossary initial interview training - the job script the job script new counselors are taught is as follows initial interview training greeting credit counseling this is may help you what zip code are you calling from you are in city in state let me tell you what we do and see if it's what you are looking for ok the name of our service is org we're a federally approved tax-exempt non-profit organization our main goal is to provide personal financial education and tools that can help you get out of debt we are run by accountants and financial professionals and we're set up to help people who are over extended on things like credit cards medical bills department store cards or __ if you have any kind of personal loan that was not made with collateral in other words we can't help with car payments house payments current light bills or current phone bills the reason for that is they can be taken away or turned off we can however help with old bills form 886-acev department of the treasury - internal_revenue_service page -42- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org now is that the situation that you're in listen if you qualify can help get you better payments qualify what kind of bills are you dealing with do you have any idea how much do you owe tell me what's going on with the payments are you current or are you running a little behind if current what kind of interest rates do you have are they high or low do you ever pay more than the minimum due are you still charging more than you are paying each month are your balances going down each month are your cards maxed out or close to being maxed out if current based my experience if you're on time and making only the minimum payments each month it would probably take you around years to pay that kind of debt off look you're making payments does the amount you owe go down very much each month wait for a reply and give the person a chance to talk about how they feel about their situation if behind when was the last time you made a payment are they calling or bothering you very much if yes besides helping to get you out of debt one of the other advantages of is helping to get those calls stopped this program if behind based my experience even if you were on time and making minimum payments each month it would probably take you around years to pay that kind of debt off the reason for that is once you get behind all your really doing is paying interest late fees and penalties form 886-acrev department of the treasury - internal_revenue_service page -43- form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer org explanation of items does the amount you owe go down at all each month wait for a reply and give the person a chance to talk about how they feel about their situation if the person does not indicate any concern over their situation question them further to make sure that you both truly understand their situation if at this point a dmp does not seem appropriate inform them that we have financial resource specialists that can help to determine what type of educational_assistance may benefit them and transfer the call after making a brief introduction explain after hearing an acknowledgement of the serious nature of their situation what we can do is combine all of those debts into one monthly payment we can work with your creditors to get you an interest rate of around to if accurate based on creditors mentioned stop the late fees and penalties including most over the limit fees so that the majority of your payment goes towards paying off what you owe if you want can figure out what your payment should be do you have an idea of who you owe and approximately how much you owe each one don't need any of the account numbers at this time go to software creditor info tab make sure there is a lead number altogether you owe around dollar_figure can get you a payment of approximately dollar_figure around to and it should only take you about to years to pay it off with an interest rate generally averaging would that help you need to tell you there are disadvantages to this you'll have to be willing to give up the credit cards that you put on the program your creditors will not allow you to continue to charge on these accounts while you are paying them off at the reduced interest rates also you will not be able to get any new credit cards until you finish the program is that ok also you need to remember that this is not a free ride even though this will save you money you are still paying some interest to your creditors and there are some fees associated with our service and i'll explain it all to you in advance ok let me explain because we are a non-profit company your credit card companies allow us to arrange for our clients to receive lower interest rates and stop the late fees and penalties so they can pay their bills off faster all of your bills will be org into one payment each month you send your payment to a_trust account and then we pay each of your creditors automatically if at any time you have extra money send it to us it goes directly to the principal and you will be out of debt even faster form 886-a rev department of the treasury - internal_revenue_service page -44- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items in addition if you've been behind after you're with us for days your creditors will generally re- age your accounts bringing them back up to current status besides getting you out of debt we also help you improve your credit rating and provide a variety of free educational resources which are available to all clients and non-clients alike the bottom line is this is the least expensive way to payoff this kind of debt and without hurting your credit rating do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions do you have any questions if the person does not indicate an interest in debt management do not sell inform them that we have financial resource specialists that can help to determine what type of educational_assistance may benefit them and transfer the call after making a brief introduction go to application only if ready application the next step is to do an application to see if j can get you approved for the service then will mail you a proposal for your review after reading it over you can decide if this will work for you do you have or minutes to spend on the phone go to software how did you hear about us after application what i'm going to do now is have your application reviewed for the program but first after application name you to call me back in about one hour to see if you have been approved grab a pen and piece of paper and take my name and number need slowly my name i sec_2 the name of the company is org we are a non-profit agency run by cpa sec_5 if you need any additional information on our company you can check out our web-site at website my phone number is also you can access all of our free financial educational resources also you can get our company history from the all you have to do is call their national number now need you to call me back in about one hour ok department of the treasury - internal_revenue_service form 886-ackev page -45- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx c_-_ see change regarding initial fee replace and destroy old page don't forget to say 66you're welcome approval _ have good news was able to get you approved for some help you owe around dollar_figure dollar_figure do you feel sure that you can afford this _ correct your payment on this will be about now let me explain how we get paid the majority of our revenue comes from donations that your creditors make in order to support what we do also we receive dollar_figure payment that helps to cover our costs for servicing your account each month it's not extra this is built into each payment of dollar_figure dollar_figure to begin dollar_figure to dollar_figure to establish an account with us and that is due whenever you are ready you'll make each month also it costs out of each only if asked this is far less than you would have been paying in interest and late fees understood not valid in state also as a bonus when you finish the program we will send you dollar_figure in order to receive this you must make all of your payments on time and payoff all of the bills through our program understand you can take the money and celebrate one more thing have to cover with you there are a number of ways you can make your monthly payment the easiest way is to have it automatically taken out of your checking account each month otherwise you'd need to send in a money order bank check or pay with western union each month or check by phone which can get expensive obviously the best way is to do it by autopsy do you have a checking account if yes would you like me to send you the forms if yes all you need to do is attach a voided check check the box to pay the initial fee automatically check the box to pay monthly and sigh the form if no no problem department of the treasury - internal_revenue_service form 886-a crev page -46- form 886a department of the treasury - interhal revenue service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items will send out your approval package today it will include a list of instructions of the things you need to send back in order get started it will tell you to send copies or originals of all of the bills that you want help with a check for dollar_figure read and sign the membership agreement what this does is give us the things you need to send back in order get started it will tell you to send v v v v v w v v v v copies or originals of all of the bills that you want help with a check for dollar_figure read and sign the membership agreement what this does is give us permission to contact your creditors in order to get you the lower interest and payments it does not create any type of obligations on your part you may drop out of the program any time you want autopay don't forget the autopay form with voided check state only look over the budget analysis and sign it a photo-copy of a recent pay-stub a photo copy of your driving license the only thing ask is that you send all of this information back by priority mail it only costs dollar_figure this will help us identify your package as a new client in our mail room and allow us to process it much faster do you have any questions ok after you receive our proposal read everything over and call me if you have any questions if not please call me before you send the envelope and we'll make sure that everything is there so that the process of getting you started and getting you out of debt won't be held up do you-have any questions description of the training process in response to the examining revenue agent's inquiry regarding the type of training new counselors received org provided the following statement the training for newly hired counselors is conducted internally there is an intensive one-week training session that is given to all new counselors prior to interacting with clients due to our excellent counselor retention rate counselors are usually hired and trained one or two at a time as a result the training conducted by our credit counseling manager or supervisor is extremely personalized to the individual training needs of our training manual which covers new counselor information on the company company policies protocol for counseling and information regarding the services org offers a copy of the protocol for counseling has been provided previously to the service additionally new counselors are also trained on the counselors are provided with a department of the treasury - internal_revenue_service page -47- form 886-a crev form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer explanation of items org use of our computers and our computer systems counselors receive extensive training on the workings of all departments within the organization in order to provide them with the best possible perspective of the services provided to clients as part of the training process new counselors sit side by side with the trainer and listen in on the phone calls and counseling sessions of experienced counselors after the initial training and once ready to work on their own the new counselor is monitored constantly and on a daily basis for a significant period of time and retrained in areas where they have a weakness- new counselors also attend the same on-going training as our more experienced counselors evaluation of new counselors during the training process org claims that counselors in training are evaluated at various stages throughout the training process by undergoing constant monitoring counseling sessions are tape recorded and played back to the counselor by the credit counseling manger who in turn provides constructive verbal feedback on any areas that need improvement in addition as stated above training is conducted on a one to one basis thus ensuring that counselors receive individualized feedback allowing the counseling manager to monitor their progress monitoring continues for months after initially trained effectiveness of the training program the effectiveness of the training program is evaluated by auditory monitoring of counselors on a regular basis by the credit counseling manager the credit counseling manager completes a telephone counseling screening report during the monitoring process this is subsequently discussed with the counselor and then the report is discarded ongoing training according to org the counseling department meets on a weekly basis counselors meet to discuss issues within the company new laws updated and new procedures and any other issues pertinent to the industry or their profession feedback is provided by the credit counseling manager regarding counselor performance to rectify any deficiencies a counselor may have compensation a may 20xx memo to counseling staff re pay system the memo provides that counselor compensation is not based on the outcome of each individual counseling session but rather on recommending debt management to those individuals who may benefit from this program under this policy counselor compensation is determined as follows a a counselors will be paid a flat rate of dollar_figure per client making a dmp payment provided at least clients have made a payment during the corresponding pay_period the flat rate falls to dollar_figure per client if the total number of clients is under b payment of bonus department of the treasury - internal_revenue_service page -48- form 886-a crev form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx performance bonuses are paid at each of the following breakpoints bonus amount c draw because counselors are paid on a commission only basis new counselors are paid a draw which represents a loan that the counselor pays back as follows because of the delay in a new counselor reaching full productivity due to an extensive is our practice to insure that new initial training and a normal learning curve it counselors earn at least dollar_figure per week as a result small advances are commonly given to new counselors advanced against their projected future productivity k related parties and related_party transaction sec_4 ownership interests held by founder see exhibit president the founder president and chairman of org has an ownership_interest in the following entities that provide services to org entity name cco-1 co-9 co-10 co-16 dba co-16 co-14 co-15 sole sole sole principat ownership_interest sole sole ownership interests held by directors dir-7 director is the president and co-founder of co-36 inc the web site of co-36 provides that it a management and technology consulting firm that helps organizations develop and implement is marketing and growth strategies improve operations and capitalize on technology related_party transactions department of the treasury - internal_revenue_service form 886-a cev page -49- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org a back office processing services see exhibit background sometime on or before january 19xx org decided to outsource its back office processing services pursuant to the january 19xx minute of meeting of the committee of independent directors of the board_of directors committee the benefits of outsourcing include the following q a q qo reduction in payroll reduction is office space under lease reduction in general overhead expenses and greater emphasis on client and community education no report quantifying such financial benefits was provided to the examining revenue_agent agreement with co-10 on january 19xx org signed an agreement with co-50 co-50 to outsource its back end processing services to co-50 certain terms contained in the agreement the term of the agreement is from january 19xx to december 20xx and is automatically renewable for an additional term of years unless either party provides written notice to the contrary at least days prior to the end of the then current term the agreement may be terminated under the following circumstances a q g expiration of agreement revocation of regulatory authority for org to conduct any debt consolidation activities failure of org to make payments for services described herein the fee for the services is a monthly charge based on the number of active clients of org for such month as provided below number of active clients monthly fee per client or fewer big_number big_number big_number - big_number big_number or more form 886-a crev department of the treasury - internal_revenue_service page -50- form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx year period ended name of taxpayer explanation of items org an active client are those listed regardless of whether they have made a payment that month in active status on the database at the end of any month the agreement requires org to defend indemnify and hold harmless co-50 from and against any and all claims demands suits losses costs expenses obligations liabilities and damages including attorneys’ and paralegals’ fees and costs incurred or sustained by co-50 by reason of org's inability to maintain their regulatory authority or in connection with any breach of org’s obligations additional rights of co-50 include q q q upon org s termination co-50 has the right to compete for all of org’s clients either on behalf of co-50 or on behalf of another non-profit corporation engaged in credit counseling any software designed licensed purchased and used by co-50 is and will remain the property of co-50 upon termination of the agreement org shall return the originals and all copies of all information data and materials provided by co-50 regardless of whether such information data or materials constitute confidentia information to co-50 disclosure of agreement with co-51 the agreement also discloses that co-50 provides similar services to co-51 an sec_501 credit_counseling_organization and that for administrative ease co-50 is authorized to process billings and applications for contributions from credit grantors attributable to the active clients of co-51 in the name of org deposit all collections from credit grantors to an account in the name of org and make such distributions to co-51 as may be required in accordance with applicable agreements between org and co-51 i services to be provided by co-10 a data entry a b c entry of client information ie name address home and work phone numbers social_security numbers scheduled payments and demographic and referral information provided by org entry of credit information provided by org including a screening a creditors to make certain that the correct amounts are being paid sending program orientation packets to all clients and calling all clients initially set up by assigned customer service personnel department of the treasury - internal_revenue_service form 886-a rev page -51- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org d e f g h o o o o q follow up with clients who need to provide additional information revising scheduled payments for clients of org in consultation with clients’ creditors sending out proposal letters to creditors on behalf of clients of org monitoring the proposal acceptance process and maintaining the database which tracks all client deposits and disbursements b customer service responding to creditors’ inquiries regarding client accounts responding to clients’ inquiries regarding their accounts addressing clients’ concerns with creditors researching questions posed by clients and creditors when necessary and confirming establishment of payment plans when requested by potential lenders cc computer support maintaining a database program which retains all client and payment information and makes the information easily accessible provided that org shall perform all trust account reconciliation and check disbursement payment inputting and on january 19xx org entered into a software license agreement with co-9 co-9 the effective date of the agreement is october 19xx the term of the agreement i sec_3 years the term is automatically renewable for successive year periods unless either party provides written notice to the other party of intent not to renew at least days but not greater than days prior to the end of the then existing term co-9 developed and owns two computer_software programs the programs were developed for use by credit counseling organizations the first program counselor program tracks productivity of counselors calculates counselor performance and margins it also is a database of leads sources of leads and client information the second program trust program is a database in which client payments and disbursements and member activity are maintained q revising and modifying the data system as needed b software leases the total monthly license fee is dollar_figure form 886-acrev c advertising on january 19xx org entered into an advertising services agreement with co-1 the effective date of the agreement is january 19xx the term of the agreement i sec_3 years the term is automatically renewable for successive year periods unless either party provides written notice to department of the treasury - internal_revenue_service page -52- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items year period ended june 20xx name of taxpayer org the other party of intent not to renew at least days but not greater than days prior to the end of the then existing term under the terms of the agreement co-1 agreed to produce and place advertising for org’s debt management program for instance co-1 would meet with org regarding where org should be advertising and would place the ads in addition co-1 would supervise script and production of the ads org shall pay a monthly fee equal to a the total amount expended by org during the prior fiscal_year for advertising b multiplied by a factor of and c divided by months based on the ratio the appraiser co-52 values the services at dollar_figure per month according to the previous agreement between org and co-1 dated 12-20-19xx co-1 is produce and place advertising for org dollar_figure mo to d office furniture fixtures and computer equipment on january 19xx org entered into a personal_property lease with co-14 the effective date of the agreement is january 19xx the term of the agreement i sec_5 years the term is automatically renewable for successive year periods unless either party provides written notice to the other party of intent not to renew at least days but not greater than days prior to the end of the then existing term of its office furniture fixtures and under the terms of the agreement org agreed to lease all as a result of material computer equipment from hsd in addition org acknowledged that additions to equipment it underpaid its monthly rent from july 19xx to december 19xx as a rate of dollar_figure per month or dollar_figure in total pursuant to the co-52 appraiser's report the total monthly lease payment should be dollar_figure per month e office space in december 19xx org entered into an office space lease agreement with co-15 the term of the agreement i sec_66 months the term is automatically renewable for additional terms of year periods unless either party provides written notice to the other party of intent not to renew at least days but not greater than days prior to the end of the then existing term org agreed to pay dollar_figure per year or dollar_figure per month the lease was amended on june 20xx to increase org’s annual rent to dollar_figure or dollar_figure per month in addition to the base rent the appraiser co-52 determined that an estimated charge of dollar_figure per square foot would be assessed to cover costs to the common areas and operating_expenses f benefits program department of the treasury - internal_revenue_service form 886-a rrev page -53- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items on september 19xx org entered into an enhancement program agreement with co-53 co- years the term is automatically renewable for the initial term of the agreement is successive renewal terms unless either party provides proper notice of non-renewal to the other party not less than days prior to the end of the then existing term under the agreement co-53 agreed to provide a package of benefits and related brochures to org which it then offered its client-members one of the primary benefits offered through the membership package is a dollar_figure accidental death and dismemberment ad d policy in addition to the ad d policy the membership package includes a variety of helpful items and discount benefits according to the agreement besides the ad d policy the membership package includes but is not limited to q q q q q a a q q travel and entertainment discounts movie and theme park discounts travel rewards car rental discounts key ring registration asset organizer custom trip planning discount flowers and gifts medical ill card auto emergency log a q a a q q q q qo discount long distance service discount contact lenses budget analysis form grocery coupons mail order pharmacy household inventory record vision care instant coupon money for college the fee charged to client-members is dollar_figure per new client-member set-up and dollar_figure per month for the cost of the enhancement program g co-36 for the years ended june 20xx org has paid co-36 approximately dollar_figure in a subsequent fiscal_year however org selected co-36 to manage the expansion of its national call center h co-51 in selecting co-50 to provide back office administrative support the committee independent directors of the board_of directors cited co-50’s contract with co-51 presumably as proof of co- 50’s competence to provide such services to org however neither the minutes of meeting of the committee independent directors of the board_of directors nor the minutes of meeting of the board_of directors disclosed several facts a co-51 was incorporated in the state of state on january 19xx department of the treasury - internal_revenue_service form 886-a rev page -54- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items co-51’s initial application_for exemption submission was denied in october 19xx a a q q q co-51’s second application_for exemption was received by the irs on january 20xx for the year ended june 19xx co-51 reported dollar_figure revenues for the year ended june 19xx co-51 reported dollar_figure in revenues for the 6_month period ended december 19xx co-51 reported dollar_figure in revenues president is a director of co-51 li applicable law exemption from federal_income_tax internal_revenue_code section irc a exempts from federal_income_tax the income of organizations described in sec_501 reauirements applicable to organizations described under sec_501 under sec_501 an organization qualifying for exemption from federal_income_tax pursuant to sec_501 must meet the following requirements q qo charitable it must be organized and operated exclusively for one or more religious scientific testing for public safety literary or educational purpose or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals its net_earnings may not inure to the benefit of any private_shareholder_or_individual of its activities may be the conduct of propaganda or otherwise no substantial part attempting to influence legislation or it may not participate in or intervene in any political campaign on behalf of or in opposition to a candidate for public_office two prong test for determining and maintaining exemption status under irc treasury regulations section tr c -1 a provides that an organization must be both organized and operated exclusively for one or more sec_501 exempt_purpose in order to be exempt as an organization described in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt tr c -1 b provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization department of the treasury - internal_revenue_service page -55- c form 886-acev organization test a form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer june 20xx year period ended org limit the purposes of such organization to one or more exempt purposes and _ do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes b operational_test tr c -1 c provides that an organization must be engaged primarily in activities that accomplish one or more exempt_purpose to qualify as an organization operated exclusively for an exempt_purpose furthermore an organization will not qualify for exemption if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose organizations exempt under sec_501 must also serve public interests tr c -1 d ii provides that an organization is not organized or operated exclusively for one or more sec_501 exempt_purpose unless it serves a public rather than a private interest thus to meet this requirement it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests exempt purposes of permissible exempt purposes set forth the list in sec_501 are charitable religious educational scientific literary testing for public safety fostering national or international amateur sports competition and the prevention of cruelty to children or animals the legal meaning of these categories has been developed in the tr and in rulings of various types interpreting the irc and the tr a charitable its generally tr c -1 d provides that the term charitable is used in sec_501 in accepted legal sense and is therefore not to be construed as limited by the separate enumeration in sec_501 of other tax-exempt purposes which may fall within the broad outlines of charity as developed by judicial decisions such term includes relief of the poor and distressed or of the underprivileged advancement of religion advancement of education or science erection or maintenance of public buildings monuments or works lessening of the burdens of government and promotion of social welfare by organizations designed to accomplish any of the above purposes or i to lessen neighborhood tensions ii to eliminate prejudice and discrimination iii to defend human and civil rights secured_by law or iv to combat community deterioration and juvenile delinquency b educational tr c -1 d i provides that the term ‘educational’ as used in sec_501 is defined as the instruction or training of the individual for the purpose of improving or developing his capabilities department of the treasury - internal_revenue_service form 886-acrev page -56- form 886a department of the treasury - internal_revenue_service schedule no or exhibit year period ended june 20xx name of taxpayer org explanation of items or the instruction of the public on subjects useful to the individual and beneficial to the community an organization may be educational even though it advocates a particular position or viewpoint administrative and judicial rulings pertaining to credit counseling organizations a revenue rulings revrul_65_299 1965_2_cb_165 as exempt under internal_revenue_code section credit_counseling_organization open to the general in revrul_65_299 the irs recognized a organization was public incorporated as a nonprofit corporation to assist families and individuals with financial problems and to help reduce the incidence of personal bankruptcy the organization was recognized as exempt under sec_501 because it c the - o o o o o o did not limit its services to those in need of such assistance as proper recipients of charity employed specialists to interview applicants analyze the specific problems involved and counsel applicants on the payment of their debts arranged a monthly distribution to creditors based on the debtor's ability to pay communicated with creditors and with the creditors’ consent set up plans which debtors agreed to follow made its facilities available for debtors to make their monthly pro_rata distributions to creditors made no loans to applicants nor negotiated loans on their behalf charged nominal fees to cover postage and supplies for its monthly prorating services charged no fees for the counseling service and relied upon voluntary contributions from local businesses lending agencies and labor unions to cover its costs of operations revrul_69_441 1969_2_cb_115 the irs determined that certain credit counseling organizations might in revrul_69_441 meet the requirements of sec_501 because of their charitable or educational work the organization limited its services to low-income individuals and families with financial problems its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions to qualify for exemption under internal_revenue_code sec_501 the organization q provided educational information to the general_public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications department of the treasury - internal_revenue_service form 886-a cev page -57- fom 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer year period ended june 20xx org a q assisted low-income individuals and families with financial problems by providing them with individual counseling and if necessary by establishing budget plans serviced the budget plan by allowing the debtor to voluntarily make fixed payments through the agency holding the funds in a_trust account and disbursing the funds on a partial payment basis to the creditors whose approval was obtained in advance q made no loans to debtors or negotiated loans on their behalf charged no fees for counseling services or proration services - the debtor received full credit against his her debts for all amounts paid and q relied upon voluntary contributions primarily from the creditors participating in the eae s budget plans for its support sec_501 v sec_501 the irs distinguished the facts in this ruling from the facts in revrul_65_299 that held the organization was exempt under internal_revenue_code sec_501 q q the agency in revrul_65_299 was not engaged in any educational activities the agency in revrul_65_299 did not limit its assistance to a charitable_class - families or individuals in need of such assistance as proper recipients of charity b judicial rulings in consumer credit counseling service of alabama v united_states u s t c d d c the court held that a credit_counseling_organization may be exempt from federal_income_tax even if it does not limit its clientele to low income individuals where the services provided by the organization are educational in nature by ruling so the court reversed the irs in its revocation of the exempt status a credit_counseling_organization that provided credit counseling but did not limit their services to low-income individuals the consumer credit counseling service agency was an umbrella organization made up of numerous individual co-3 it had been recognized as exempt under sec_501 and its activities were as follows q the agency provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit q q the agency also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families but did not limit these services to low- income individuals and families the agency charged a nominal fee of up to dollar_figure per month for some of their services but waived the fee in instances where payment would work a financial hardship department of the treasury - internal_revenue_service form 886-aev page -58- form 886a department of the treasury - internal_revenue_service june 20xx year period ended name of taxpayer org explanation of items schedule no or exhibit oq the agency received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the co-4 an incidental amount of their revenue was from the counseling fees this was consistent with the fact that only percent of the professional counselors’ time was spent on debt management programs as opposed to education the balance of time was devoted to the educational programs q the agency was controlled by a community board_of directors the boards were required to have at least a percent representation of the general_public a the agency were not controlled by or the captive of any creditor in relying on revenue rulings and the irs notified the agency that it had made a mistake and was reclassifying them under sec_501 the court however provided that the law does not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under sec_501 organizations may be properly designated under sec_501 notwithstanding the fact that the general_public is served nonetheless the agency did not charge a fee for the programs that constitute their principal activities a fee may be charged for a service that is an incidental part of an agency's function but is nominal moreover even this nominal fee is waived where even where a fee is so charged it payment would work a financial hardship the courts reached a similar decision in credit counseling centers of oklahoma inc v united_states u s t c d d c where the facts and legal analysis were found to be virtually identical to those in agency other administrative and judicial rulings a revenue rulings counseling activities qualifying for exemption under sec_501 outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 1968_1_cb_249 career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public department of the treasury - internal_revenue_service form 886-aev page -59- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx private benefit does not necessarily involve the flow_of funds from_an exempt_organization to a private party c b considered an organization formed to promote revenue_ruling broadcasting of classical music in a particular community the organization carried on a variety of activities designed to stimulate public interest in the classical music programs of a for-profit radio station and thereby enable the station to continue broadcasting such music the activities included soliciting sponsors soliciting subscriptions to the station's program guide and distributing pamphlets the organization's board_of and bumper stickers encouraging people to listen to the station directors represented the community at large and did not include any representatives of the for-profit radio station the revenue_ruling concludes that the organization's activities enable the radio station to increase its total revenues and therefore benefit the for-profit radio station in more than an therefore the organization is serving a private rather than a public interest and incidental way does not qualify for exemption - b judicial rulings a substantial nonexempt purpose destroys the exemption in 326_us_279 the better - a corporation organized and operated business bureau bbb claimed that exclusively for scientific or educational_purposes and hence it was entitled to exemption from social_security_taxes under sec_811 of the social_security act the court however held that the presence of a single nonexempt purpose if substantial in nature would destroy the exemption regardiess of the number or importance of truly exempt purposes it qualified as better business bureau bbb was organized in as a non-profit non-stock corporation under bbb was formed to promote ethical business practices the laws of the district of country educational and scientific advances and profitability in the business community in carrying out its purposes bbb divided its work roughly into five subdivisions prevention of fraud by informing and warning members and the general_public of the plans and schemes of various types of swindlers fighting fraud by bringing general and abstract fraudulent practices to the attention of the public elevation of business standards by showing and convincing merchants that the application of the doctrine_of caveat emptor is not good business and by showing and convincing them that misleading advertising extravagant claims and price comparisons are not good business education of consumers to be intelligent buyers and cooperation with various governmental agencies interested in law enforcement department of the treasury - internal_revenue_service form 886-a rev page -60- form 886a department of the treasury - internal_revenue_service year period ended june 20xx name of taxpayer org explanation of items schedule no or exhibit bbb compiled information to warn its members and the general_public of fraudulent schemes and practices the information was available to anyone without charge and was communicated to the members and the public by means of the radio newspapers bulletins meetings and interviews by doing so merchants were taught to conduct their businesses honestly while consumers were taught to avoid being victimized and to purchase goods intelligently in this instance in order to fall within the claimed exemption an organization must be devoted to educational_purposes exclusively this plainly means that the presence of a single noneducational purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly educational_purposes it thus becomes unnecessary to determine the correctness of the educational characterization of petitioner's operations it being apparent beyond dispute that an important if not the primary pursuit of petitioner's organization is to promote not only an ethical but also a profitable business community the exemption is therefore unavailable to petitioner the commercial hue permeating petitioner's organization is reflected in its corporate title and in the charter provisions dedicating petitioner to the promotion of the mutual welfare protection and improvement of business methods among merchants and others and to the securing of the that merchants might educational successfully and profitably conduct their business petitioner's activities are largely animated by this commercial purpose unethical business practices and fraudulent merchandising schemes are investigated exposed and destroyed such efforts to cleanse the business system of dishonest practices are highly commendable and may even serve incidentally to educate certain persons but they are directed fundamentally to ends other than that of education any claim that education is the sole aim of petitioner's organization is thereby destroyed scientific advancements of business methods so and business_purpose is the primary goal and earnings inured to the benefit of its president in easter house v united_states cl_ct the court held that organization was not its action against the federal government where a portion of its entitled to declaratory relief in earnings inured to the benefit of its president easter house operated as a for-profit corporation beginning in in it amended its articles of incorporation to become a non-profit corporation and it applied for tax-exempt status under sec_501 a manner not the irs denied easter house's application stating that easter house operated in distinguishable from a commercial adoption agency the irs concluded that a substantial purpose of easter house's activity was commercial and hence that easter house was not operated ‘exclusively for tax-exempt purposes as required by sec_501 the irs also found that easter house had not shown that no part of its net_earnings inured to the benefit of a private individual easter house's income derives entirely from the fees charged to adoptive parents it does not solicit contributions it does not seek or receive funding from any governmental source and it does not use any volunteers to assist its paid staff of persons department of the treasury - internal_revenue_service form 886-a crev page -61- form 886a department of the treasury - internal_revenue_service year period ended june 20xx name of taxpayer org explanation of items schedule no or exhibit seymour kurtz is easter house's president and its sole life member which gives him the power to appoint all of the other directors under easter house's bylaws these positions vested sweeping power in kurtz including the power to decide what corporate affairs will be managed by the life member alone at all relevant times kurtz was also involved either as the sole owner or as a director with three other organizations engaged in adoption-related activities easter house engaged in financial transactions with each of these three entities including an dollar_figure loan to one of the organizations which was uncollectible because the debtor became inactive and without assets the claims_court sustained the irs’s position the court held that easter house was operated for the substantial commercial purpose of earning profits from placing children for adoption the court also agreed that easter house had failed to show that no part of its net_earnings inured to the indeed pointing-to kurtz's use of easter house as a private source benefit of a private individual of loan credit and to what the court found to be excessive_compensation the claims_court concluded that part of easter house's net_earnings clearly inured to the benefit of kurtz the court_of_appeals affirmed agreeing with the claims_court that easter house failed to qualify as a tax- exempt_organization both because it was not operated primarily for charitable purposes and because a substantial part of its net_earnings inured to kurtz the factual conclusions of both courts below that easter house failed to qualify for sec_501 tax in particular easter exemption on both of these grounds were amply supported by the record in easter house house charged adoptive parents high fees that yielded substantial profits profit of more than dollar_figure a margin and it also generated large reserve made a accumulations this fact coupled with the fact that as a general_rule easter house's services were reserved exclusively for women who decided to place their children with easter house for adoption and for afford to pay the fixed fees strongly supported the finding that easter adoptive parents who could by the same token the inurement finding house's purpose was largely commercial not charitable was supported by kurtz's use of easter house as a source of credit for other entities that he controlled private interests benefiting more than incidentally does not further an exempt_purpose in international postgraduate medical foundation v commissioner t c memo the court held that an organization is not operated exclusively for one or more exempt purposes under sec_501 if a substantial non-exempt purpose of an organization's operations was to provide benefit for a for-profit tour agency form 886-acrev department of the treasury - internal_revenue_service page -62- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx international postgraduate medical foundation foundation was founded by michael helin who also is foundation’s original chief_executive_officer since its inception foundation has organized its stated purpose is to sponsored and co-sponsored seminars and symposia in the medical field provide continuing medical education to physicians mr helin served as trustee without mr helin had contro of the daily operations of foundation salary or compensation in recognition of foundation's regular use of his travel agency h c tours to arrange the tours for foundation's seminars h c tours is a for-profit travel agency of which mr helin is foundation used h c tours exclusively for all travel arrangements a shareholder and the president foundation and h c tours entered into a travel services and administrative support agreement which allowed competitive bids for travel arrangements but required acceptance of h c tours’ there is no evidence that foundation solicited price if within percent of any competitive bid competitive bids from any entity other than h c tours foundation physically located its office within the offices of h c tours h c tours provided foundation's secretarial clerical and administrative personnel for a fee equal to h c tours' cost such services are only available to petitioner during reasonable nonconflicting business hours foundation's program is to take physicians on tours throughout the world each lasting about three weeks continuing medical education seminars are provided during the tours fondation's brochures emphasize the sightseeing and recreational component of the tours the mention of brochures do not describe the medical curriculum for the seminars and symposia medical education in the brochures is limited to a statement that participation qualifies for american medical association category one credit educational activities occurred on less than one-half of the days on a typical tour an average of hours were devoted to educational activities on such days the irs alleged that foundation's operations include two substantial nonexempt purposes benefit for h c tours and helin and sightseeing and recreation activities the court held that foundation is not operated exclusively in furtherance of purposes described in sec_501 because a substantial purpose of foundation's operations was to increase the income of h c tours a q c tours benefits from the distribution and production of brochures which solicit h customers for tours arranged by h c tours approximately percent of petitioner's total revenue for was expended on production and distribution of brochures department of the treasury - internal_revenue_service form 886-ackev page -63- form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx q q the terms of the travel services and administrative support agreement further insured that h c tours would substantially benefit from foundation's operations foundation did not solicit competitive bids from any travel agency other than h c tours in h c received dollar_figure big_number in gross revenue for air fares and land arrangements as a direct result of foundation's tours mr helin controlled petitioner and exercised that control for the benefit of h c tours total revenue for on production and foundation spent about percent of distribution of brochures the brochures provided a direct benefit to h c tours in the form of air and land travel billings its the court further held that foundation did not provide a bona_fide medical education program q q foundation's brochures heavily emphasize the recreational sightseeing activities of the tours continuing brochures medical education course descriptions are not included in foundation's foundation has not established that the recreational sightseeing activities were insubstantial or only incidental to petitioner's educational_purposes prohibited private interests include those of unrelated third parties as well as insiders in 70_tc_1037 the court held that an organization’s tax planning services are a nonexempt activity that is substantial in nature and not incidental to its charitable purpose therefore csa fails to qualify for exemption from taxation christian stewardship assistance inc ‘csa was formed as a nonstock corporation to support and assist charitable organizations as they fulfill their exempt charitable activities by assisting such organizations in their relationships with their contributors and in stimulating proper application of christian stewardship principles among their contributors in furtherance of these purposes csa engaged in financial counseling by providing a financial planning service to wealthy individuals who have contributed to various christian organizations and whose net_worth exceeded one-half million dollars the counseling given by csa consists of advice on how to increase a contributor's current or deferred donations to christian organizations csa prepared a financial plan for a contributor that the financial plan is takes into account his personal goals and the applicable tax savings developed to permit increased current or deferred donations by rearranging the inter_vivos or the rearrangement also testamentary_disposition of the individual’s assets to family members tax and cost estimates comparing results in a reduction of federal income and estate_taxes department of the treasury - internal_revenue_service page -64- form 886-acev form 886a department of the treasury - internal_revenue_service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx results under present and suggested financial plans are prepared by csa with accompanying charts illustrating the effects of the suggested plan on family and christian interests csa also assists the individual’s attorney in implementing the financial plan chosen by the individual to reimburse its costs of operation csa charged a fee to each subscribing organization based support is also received in the form of voluntary upon a percentage of its developmental budget individuals who are assisted are neither billed for nor donations from individuals whom it assists informed of the costs of the counseling they receive in the irs issued a final notice_of_determination affirming a prior adverse determination which denied exemption under sec_501 the irs determined that the described activities although helpful to charitable organizations are not exclusively for charitable purposes but rather serve private interests by advising individuals about methods to decrease federal income and estate_taxes csa on the other hand contends that its founders have not benefited monetarily and its clients is the have not benefited economically from the services offered by its organization rather it charitable organizations to which gifts are made which receive the greatest economic benefit from csa’s work the court held that csa failed to qualify for exemption under the operational_test because its its sole financial planning organization was not operated exclusively for charitable purposes activity albeit an exempt_purpose furthering christian fundraising efforts has a nonexempt purpose of offering advice to individuals on tax matters that reduces an individual's personal and estate_tax liabilities based upon those private benefits offered we find the nonexempt purpose to be greater than the exempt_purpose an educational corporation was not exempt because its income- producing activities were not incidental to its educational activities in est of hawaii v commissioner t c affd in unpublished opinion 647_f2d_170 9th cir the tax_court found that for-profit est entities were able to use est of hawaii a non- profit organization as an instrument to further their for-profit purposes even though the for-profits lacked structural control_over the nonprofit due to the significant indirect control exerted by the for- profits est of hawaii hawaii is a corporation which was organized as a nonprofit corporation est stands for erhard seminars training and encompasses the general theory the body of knowledge and the method and techniques which are used in est programs and were developed by werner erhard the the est programs deal with the areas of intrapersonal awareness and communication standard est training is a 52-hour session held on consecutive weekends with groups of to people these sessions are conducted by persons who are called trainers graduates of the standard training participate in regular activities called seminars department of the treasury - internal_revenue_service page -65- form 886-a cev schedule no or exhibit form 886a department of the treasury - internal_revenue_service name of taxpayer explanation of items year period ended june 20xx org to est three related several including corporations are conducted by for-profit activities corporations erhard seminars training est inc presentaciones musicales s a pmsa and est international international the three entities entered into a royalty agreement with the sole objective of establishing a system for the presentation of est to the public through the organization of tax-exempt corporations covering different geographical areas throughout the united_states hawaii was incorporated by est graduates as the first step in the implementation of the royalty their objective is to develop and expand the principles and concepts of est they agreement intend to provide est training and seminars to develop promote and sell est publications related engage in educational efforts in the state of hawaii membership in hawaii is limited to graduates of the training designated erhard seminars training in order to retain membership status an individual must vote in the election of the directors of the corporation at least once in the first years and once in every successive group of three elections to be eligible for election to the board_of directors an individual must be a resident of hawaii and a graduate of erhard seminars training directors and officers receive no compensation_for their services and generally engage in est educational work lectures provide est hawaii entered into an agreement with international which incorporated the royalty agreement the licensing agreement provided in pertinent part as follows q a the agreement shall license hawaii for the period date to date inclusive the license shall continue on an annual basis without the necessity for renewal until date hawaii shall use all est materials under the direction of an est trainer hawaii shall conduct est trainings seminars and lectures and generally to promote est concepts in accordance with est principles hawaii shall charge not less than dollar_figure dollar_figure as tuition for any est training one half of all of the gross_proceeds of any est event or activity other than regular monthly seminar series conducted by hawaii shall be paid to international hawaii shall conduct regular est seminars hawaii shall sponsor and host special events and special appearances of werner erhard and other est trainers and speakers with prior notice and prior discussion est inc shall supply a trainer to hawaii to carry out management responsibilities for a period not to exceed twenty four months from date est inc shall supply hawaii management and training hawaii shall pay to international of the gross_receipts collected by hawaii for est training courses department of the treasury - internal_revenue_service form 886-a crev page -66- oa --- form 886a schedule no or exhibit department of the treasury - internal_revenue_service explanation of items year period ended june 20xx name of taxpayer org its assets from student fees lecture admissions and occasional hawaii expects to derive all donations hawaii does not intend to utilize fund-raising programs hawaii claims that it has no connection direct or indirect with est inc or international and that its transactions with international are reasonable and represent the fair_market_value of the rights and services it receives in return on this premise hawaii argues that it has no commercial purpose of its own that its payments to international are analogous to ordinary and necessary business_expenses and that the fact that international may make a profit is not a ground for denying hawaii tax-exempt status the irs on the other hand claims that hawaii is part of a franchise system which is operated for private benefit and that its affiliation with this system taints it with a substantial commercial purpose the court agreed stating that while it may be true that they are not formally controlled by the same individuals international exerts considerable control_over hawaii's activities it sets the tuition for the standard training and requires a minimum number of such trainings it requires hawaii to conduct regular seminars and to host special events it controls the programs conducted by hawaii by providing trainers who are salaried by and responsible to est inc it further controls hawaii's operations by providing management personnel who are paid_by and responsible to est inc q in short the court provided that hawaii's only function is to present to the public for a fee ideas that are owned by international with materials and trainers that are supplied and controlled by est inc under these circumstances the court stated that it can hardly be said that hawaii has made payments to a corporation with which it had no connection whatsoever regardless of whether the payments made by hawaii to international were excessive the court held that international and est inc benefited substantially from the operation of hawaii for instance oo a q pursuant to the licensing agreement international was in maximum of years a position to license hawaii for a including new material all copyrighted material upon termination transferred to est inc or international hawaii is required to use its excess funds for the development of est or related educational and scientific research although hawaii would be reimbursed at cost for all new developments it has no right to the continued use of such developments is required to be form 886-a crev page -67- department of the treasury - internal_revenue_service form 886a department of the treasury - internal_revenue_service schedule no or exhibit june 20xx explanation of items year period ended name of taxpayer org to the extent that hawaii's activities increase interest and participation in est and to the extent hawaii further develops est the ultimate beneficiaries are est inc international and pmsa the corporations in which the rights to est remain other factors indicate that hawaii is operated for commercial purposes include q q q_ trainers and local organizations are required to sign an agreement not to compete with est for years after terminating their relationship with est organizations hawaii does not expect to derive funds from donations as is typical of sec_501 organizations but rather will depend upon tuition and lecture fees tuition for the standard training is set by a for-profit corporation and fees for lectures are set not with regard to recouping costs but with regard to the eminence of the speaker accordingly the court held that hawaii is not operated exclusively for exempt purposes iv government position conclusion in applying the principles described above to org’s exemption we must ask the following related questions q a does org further a nonexempt purpose in contravention of sec_501 if so is the nonexempt purpose substantial after a long and careful review of the records we hold that org is not entitled to exemption under sec_501 for the reasons as follows a org is engaged primarily in activities that accomplish a nonexempt purpose in contravention of sec_501 and sec_170 a q more than an insubstantial part of such activities are in furtherance of a non-exempt purpose in contravention of sec_501 and sec_170 part of org’s net_earnings inured to the benefit of any private_shareholder_or_individual in contravention of sec_501 and sec_170 and org is operated for the purpose of serving contravention of sec_501 and sec_170 private rather than public interests in criteria for tax exemption under sec_501 under sec_501 an organization is exempt from federal_income_tax only if it falls within one of the specific classes that are described in sec_501 public_charities and private_foundations which department of the treasury - internal_revenue_service page -68- form 886-a cev schedule no or exhibit form 886a department of the treasury - internal_revenue_service - year period ended june 20xx name of taxpayer org explanation of items comprise the best-known class qualifying for exemption under sec_501 must meet the following requirements are conferred exemption under sec_501 organizations oo qo charitable it must be organized and operated exclusively for one or more religious scientific testing for public safety literary or educational purpose or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals its net_earnings may not inure to the benefit of any private_shareholder_or_individual no substantial attempting to influence legislation or it may not participate in or intervene in any political campaign on behalf of or in opposition to a candidate for public_office the conduct of propaganda or otherwise activities may be part its of an organization's failure to satisfy any of the four requirements is fatal to its qualification under sec_501 see 69_tc_615 in addition to satisfying each condition specified in sec_501 the exempt_organization must also establish that its purpose is not contrary to public policy see 461_us_574 application of the organizational and operational tests the starting point for our analysis is sec_501 and the regulations thereunder in order to qualify under sec_501 nhf must pass a dual test which is referred to as an organizational and operational_test pursuant to tr c -1 a under the dual tests an organization must be both organized and operated exclusively for one or more exempt_purpose as defined in sec_501 if an organization fails to meet either the organizational_test or the operational_test it is not exempt a organizational_test under the organizational_test an organization is organized exclusively for exempt purposes only if the articles of organization are so drawn that it limits the purposes of the organization to one or more exempt_purpose and does not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities which in themselves are not in furtherance of one or more exempt purposes see tr c -1 b the organizational_test relates to the rules for governing an organization and the purposes stated in its articles of incorporation org is organized exclusively for charitable and educational_purposes as described in sec_501 henceforth we do not question org’s qualification for exemption under the organizational_test b operational_test form 886-a cev page -69- department of the treasury - internal_revenue_service schedule no or exhibit department of the treasury - internal_revenue_service form 886a explanation of items name of taxpayer org year period ended june 20xx in contrast under tr c -1 c the operational_test provides that an organization will be it engages primarily in regarded as operated exclusively for one or more exempt purposes only if activities that accomplish one or more of such exempt purposes specified in sec_501 the courts the operational_test focuses on the purpose towards which an according to organization’s activities are directed and not the nature of the activities themselves in other words the purpose of the activity is ultimately determinative of the organization's right to be classified as an sec_501 organization see 70_tc_352 thus the question herein is whether org is operated exclusively for charitable and educational_purposes org’s exempt_purpose and activities that further its exempt_purpose pursuant to reg sec_1_501_c_3_-1 org contends that its purposes are exclusively charitable and educational in furtherance of such purposes org operates an inbound telemarketing call center which provides assistance to individuals who are experiencing financial and debt-related difficulties for example org claims it provides debt consolidation services ie debt management program counseling on credit and budget matters and newsletters on financial related issues org is engaged primarily in activities that accomplish a nonexempt purpose during the year under examination and the five-year period ending in fiscal_year june 20xx org's primary activity was the operation of an inbound telemarketing call center where calls originate with the respondents callers such calls were made in response to a marketing offer directed via print radio tv or other media sources the callers generally contact the call center by phone to ask for help in this case the purpose for which the call center was operated and the marketing offers were geared is to enroll consumers in org’s debt management program under the debt management program org’s credit counselors determine whether callers qualify for enrollment in the debt management program by simply determining whether callers have a net_cash_flow after expenses if qualified a consumer need only return the application signed once in the program the consumer is called a client or a member under the agreement the client deposit money each month with org which then uses these deposits to pay the client's credit card bills student loans medical bills or other unsecured debts according to a payment schedule org has worked out with the client and the client's creditors creditors may agree to lower interest rates or waive certain fees if the client is repaying through a debt management program any consumer may enroll in the debt management program without regard to financial status the purpose of org's activities differs substantially from those of the organizations cited revrul_65_299 revrul_69_441 and co-2 of state although org has engaged in two and educational disseminating self-help the general booklets to activities public eg in form 886-arev department of the treasury - internal_revenue_service page -70- form_886 a départment of thé tréasury - internal_revenue_service scheduté no or exhibit explanation of items name of taxpayer org year period ended june 20xx newsletters to its clients such activities are incidental as shown below org derived nearly all of its revenue from the debt management program which also encompasses nearly all of org’s to enroll program services expenditures it’s clear that the primary focus of the call center is consumers in the debt management program form_990 - sources of revenues 30-jun 19xx 30-jun 20xx 30-jun 20xx 30-jun 20xx 30-jun 20xx revenue fair share income debt management fees interest on savings dividends and interest total revenue fair share and debt management as a of total revenue program service expenses per form_990 31-dec 19xx 30-jun 19xx 30-jun 19xx 30-jun 20xx --30-jun 20xx 30-jun 20xx description debt management program dmp education program total dmp as a of total program service expense for org’s exemption to remain intact its debt management program must be shown to further an exempt_purpose in determining whether credit counselors have provided counseling within the meaning of the revenue rulings cited above we examined the training materials org provided to its new credit counselors other than vague references to educating or counseling the caller we found nothing of substance for instance the initial interview training script counselor protocols and form 886-acev department of the treasury - internal_revenue_service page -71- schedule ne or exhibit department of the treasury - intemat revenue service explanation of items form 886a name of taxpayer org year period ended june 20xx training manual are each oriented to enrolling consumers in the debt management program other factors we’ve uncovered include even though counselors receive form_w-2 they are paid on a draw plus commission basis the payment of bonuses are based on the number of debt payments received by org enroll several counselors whom we've interviewed have stated that their job was to consumers in the debt management program and that org did not train counselors how to provide counseling services if education were provided to callers it was as a result of the counselors own education and experience the software program is used by credit counselors solely to determine whether callers qualify for the debt management program in accordance with the program’s design the performance the co-52 business valuation report and the minutes of meeting of the board_of directors refer to counselors as salesman org’s marketing efforts including the issuance of consumer awareness’ articles and media releases are-an effort by org to increase its commercial success and measures counselor program also productivity counselor software tracks q because the debt management program constitutes the call centers primary activity we find the principal purpose behind such program to be commercial in nature more than an insubstantial part of such activities further a non-exempt purpose better business bureau v united_states the supreme court provided an exemption for in corporations organized and operated exclusively for educational_purposes said in order to fall within the claimed exemption an organization must be devoted to this plainly means that the presence of a single non- educational_purposes exclusively educational purpose if substantial in nature will destroy the exemption regardless of the number or importance of truely educational_purposes u s pincite this philosophy in somewhat modified form has been promulgated in tr c -1 c which provides an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 c an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose department of the treasury - internal_revenue_service form 886-a rrev page -72- form 886a department of the treasury - internat revenue service schedule no or exhibit explanation of items name of taxpayer org year period ended june 20xx the quotation from better business bureau above relates to purpose while the tr quoted above deals more with activities under the rationale of better business bureau the existence of a substantial nonexempt purpose for a corporation's organization and existence would appear to defeat the exemption but under the regulation even if there was no nonexempt purpose for the it must actually engage primarily in activities which organization and existence of the entity accomplish one of the exempt purposes and if more than an insubstantial part of its activities do not further such exempt_purpose the entity is not exempt having decided that org's primary activity was the operation of an inbound telemarketing call center and that the purpose for which such activity was conducted was to enroll consumers in the debt management program a nonexempt commercial purpose we must then determine whether such nonexempt purpose was substantial org does not receive charitable_contributions from the general_public nor does it receive grants from governmental institutions and private_foundations its primary source of revenue is fair share 20xx income and approximately percent of org’s revenues are derived from fair share income and debt management fees as a result we found the nonexempt commercial purpose to be substantial debt management fees in june five-year ending period for the part of org’s net_earnings inured to the benefit of president pursuant to sec_501 an organization does not qualify for tax exempt status if any of its net_earnings inures to the benefit of any private_shareholder_or_individual the inurement prohibition provision is designed to prevent the siphoning of charitable receipts to insiders of the charity 165_f3d_1173 cir 19xx in tr c -1 d ii an organization is not organized and operated exclusively for sec_501 purposes if it serves a private rather than public interest tr c -1 c c provides that the phrase private_shareholder_or_individual refers to persons having a personal and private interest in the activities of the organization a substantial purpose of easter house’s activity was in easter house the court held that commercial and that earnings inured to the benefit of the president who used easter house as a source of credit for other entities that he controlled a shell organization operated as a conduit through which for all intents and purposes org is charitable assets are diverted to six for-profit entities owned and controlled by president the founder of org the factors that indicate org’s shell status are as follows q thin_capitalization per balance_sheet org’s assets are siphoned off to six for-profit entities via related_party transactions department of the treasury - internal_revenue_service form 886-a ceev page -73- name of taxpayer department of the treasury explanation of items - internat revenue service schedute no or exhibit year period ended june 20xx fon 886a org a a oq absence of corporate assets org leases all of its furniture fixtures and equipment from co-14 and its office space from co-15 minutes of meeting of the board_of directors other than the related_party transactions the minutes do not discuss the business and affairs of org the use of the same office or business location five of the six related entities share the same office location a a the treatment by an ‘individual of the corporate assets as his own president and vice president both received substantial reimbursement of personal credit card expenditures which org could not provide documentation substantiating the nature of the expenditures jas having dominion and control_over org and the the identification off related for-profit entities president is the founder president and chairman of org and either the sole owner or principal_owner of the related for-profit entities concealment of the identity of co-50 clients do not know that when they contact the customer service_department or another back office administrative department they are contacting another organization commingling of assets the credit card reimbursements included the purchase of office supplies since documentation is not available it is not known which entity benefited from the transaction q q this case org's income-producing commercial activities are the very justification for its in existence org was simply the instrument to subsidize the related for-profit entities and not vice see est of hawaii and versa and had no life independent of those related for-profit entities international postgraduate medical foundation moreover the related for-profit entities all are dependent on the existence of org’s tax-exempt status - an element that indicates the possibility if not likelihood that the for-profit corporations were trading on such status see and compare 507_f2d_262 2d cir revg in part on other grounds 59_tc_412 see also 380_us_563 judge harlan concurring pincite and judge goldberg dissenting pincite as was the case with christian stewardship assistance and est of hawaii the prohibited private interests also includes those of unrelated third parties the debt management program was not limited to a charitable_class and org did not have an established policy or procedure to waive or reduce the fees for the indigents or to waive the fees for those to whom such fees would create consequently the debt management program did not serve a charitable financial hardship purpose see also 477_f2d_340 ca cir cert_denied 413_us_910 where the court held that an organization operating for the benefit of private parties who are not members of a charitable_class constitutes such a substantial nonexempt purpose department of the treasury - internal_revenue_service ’ form 886-a ev page -74- schedule’ no or exhibit fo sbga -_-_-_-dbepartmentofthe treasury-intemat revenue service year period ended june 20xx name of taxpayer org explanation of items v conclusion org is not operated exclusively for educational or for any other exempt purposes within the meaning of sec_501 since its primary activity is the sale of debt management plans org conducted incidental educational activities within the community provided no educational training or counseling to consumers on credit or debt management issues and did not provide education in the context of sales of its debt management plans the debt management program was not limited to a charitable_class and org did not have an established policy or procedure to waive or reduce the fees for the indigents or to waive the fees for those to whom such fees would create financial hardship consequently the debt management program did not serve a charitable purpose since the primary activity of org was the sale of debt management plans which lacked substantial educational or charitable aspects its exemption under sec_501 should be revoked effective july 20xx department of the treasury - internal_revenue_service form 886-a gev page -75- flow of cash to president exhibit debt payments from consumers to org sec_501 org inc org payment to creditors fair share payments to org entities controlled by president - co-5 co-1 co-4 co-3 co-2 a m m e e e m e d e n w o f a r e e o f n m m m m m form_990 president form_1040 org legend org - organization name 1st through companies flowchart notes xx - date president - president co-1 through co-8 - a after qualifying and enrolling in the debt management program consumers consolidate their monthly debt payments into one debt payment to org who receives an initial fee and monthly fees thereafter b twice per month org distributes debt payments to creditors on behalf of their clients c creditors pay fair share income to org -flow-of cash to president exhibit d payments to related entities poymnent related entities cco-1 co-2 cco-3 co-4 co-5 cco-6 description of services back office processing services ein address address software lease client benefits eg coupons advertising consulting services rent office equipment rental city state address city state address city state address city state address city state address city state a payments provided by org but not reported in the general ledger per its 20xx06 form_990 org generates the following revenues from its debt management plan e revenue program service revenue or fair share income membership fees revenue from fair share and membership fees total f per brtvu research the following amounts were distributed to president from his related entities 21-dec-xx 31-dec-xx 31-dec-xx related entities co-1 coo-2 co-3 co-4 co-5 cco-6 entity type dollar_figure-corporation dollar_figure-corporation limited_liability_company s-corporation limited_partnership s-corporation note based on idrs research we determined that co-8 is a non-filer it's parent co-7 also is a non-filer g per form_w-2 president received the fol 20xx and 20xx lowing amounts as salary from org for calendar years name president tax form form_1040 31-dec-xx 31-dec-xx 21-dec-xx crrerernccccnccccccaaaaassaa-a---izzze mrss cree erences errr errr exhibit a u s ‘ d n y e s s dollar_figure j u n o d o e u e ‘ p a n l a d a l s u o e d d d e s j u a l o a y y s a y y j u s w p e a e d b u s s s s s o l d dollar_figure p i i d s j u d d b y j u s s s j e s o d o j d d u p u e s a s u b j o p a s a p e s j u s i l n n o d o v n v s o s t s a d a s t s h l h a n y x a o m g n d w y a n e s f h l j o j a q u u i n u e b u l s n a q s a d i a u a s j a y s a s i a a p e n y o ‘ s p e o l p e i p u e a l s u l p n p u ‘ s u n i p a w j u a s a j i p ‘ s q u a l j o w o o d s e s a j o p u e j o u j a z u ‘ s p e_p a j u d ‘ s u o u p e d a a j z e s p u e ‘ s y u e q b u l o o u s a y p u e y y y s i y m ‘ y e s b u l y j a s u n o s y o a q d q g n n d j e s d u s h y w o s u a e s i u o i z e w u o j u p e d ‘ s u o n e o j d d e j e u s a j u l p u e s u i - y j e m ‘ s y e d y s a l n i o t v s o n i l s n y v i n o n n o g n i l s o u ‘ n y o a y q u e_p a y e j e s y o u d - s - w s a q i a o u d s s i a u a sec_3 w o v e e e e e e e q u a w a e s b e u e d j u s w a b e u e w g a p a y j o s u e b y y y m s o u e l j d w o d s i i ‘ u o m u a a j a j u n o d d e s i j u s w e d a p s i u j o a a i d e f q o a y j u s m p i e a s t s s i a i s s i s u s s a d y u a i d ‘ s u l q d a d p u e y s a j e u y j u n o d i y z ‘ s a d a u a s j u a l d t s e d j a j a s b a t y s e_p a o i d q u n o sec_2 e ‘ s a l u i n b u y b u y p u e y ‘ s i o y p a s d p u e s q u a l j o w o u s j e b u y w o s u s i a m s u e s a d a i e s p u e s j e s o d o i d b u n e_p d n ‘ s u o l o u n y s a n s s y d s e a s e d j u d b u u a j e s ‘ e o u e u a q u j e w s u a d i d dollar_figuree i u o d s u o i d j o d - d ‘ s a x e j j u d l o j s p u s y e o s j e ‘ s u o e p a s d u o s s i i s e y d w a s z j n q ‘ s w a j q o i d s a j o s p u e s a y d i e a s e s y s a j e u y j u n o ‘ s u b w a e s ‘ s y u b w u a i e s p u e ‘ s j e_p a n u n u o d j d y s u n s u s y b n o i y m o j o j p u e_p a m o j u n o w w e y o a e d a w u i j u o d s j o u p a s d p e u o d - f u s m p i e a s _ j o a e s p e w j u a w y e d a p s i u j ‘ j e s u n g s i p j s e s j u a d b y j a y y j u n o w e j o a e d a j j o j e s u n q s i p a y y m j u d i j d s u z o f j e l i a j e w u o h j o j a w_i o d