internal_revenue_service appeals_office e ninth street suite cleveland oh release number release date date date department of the treasury person to contact employee id number tel fax refer reply to in re tax period s enued form required to be filed employer_identification_number uil certified mail dear this is a final adverse determination as to your exempt status under sec_501 a of the internal_revenue_code irc it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the internal_revenue_code effective date our adverse determination was made for the following reason s you operate substantially for non-exempt purposes you are not an organization which operates exclusively for one or more of the exempt purposes which would qualify it as an exempt_organization contributions to your organization are not deductible under code sec_170 you are required to file federal_income_tax returns on the form indicated above you should file these returns within days from the date of this letter unless a request for an extension of time is granted file the returns in accordance with their instructions and do not send them to this office processing of income_tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory_judgment under code sec_7428 if you decide to contest this determination under the declaratory_judgment provisions of code sec_7428 a petition to the united_states tax_court the united_states court of claims or the district_court of the united_states for the district of columbia must be filed within days from the date this determination was mailed to you 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 we will notify the appropriate state officials of this action as required by code sec_6104 you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely karn btn dot karen a skinder appeals team manager department of the treasury internal_revenue_service tax_exempt_and_government_entities_division date taxpayer_identification_number form tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary lf you accept our findings take no further action we will issue a final revocation letter lf 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 decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in if we issue a determination_letter to you based on technical_advice no publication 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 shail not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted its 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 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 nomal 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 east 7th street stop stp saint paul mn 312-7872-fax if you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincer erry i tc htbendm- r c botacnn director eo examinations enclosures publication publication report of examination letter catalog number 34809f form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number oon xxxxx xxxxx year period ended issue whether xxxxxx is operated exclusively for exempt purposes described within internal_revenue_code sec_501 a whether xxxxx is engaged primarily in activities that accomplish an exempt_purpose b whether more than an insubstantial part of xxxxx’s activities are in furtherance of a non-exempt purpose background facts xxxxx was incorporated under the laws of the state of xxxxx as a non-stock nonprofit corporation on xxxxx xxxxx submitted organization’s application_for exemption form on xxxxx organization was determined to be exempt from federal_income_tax as an organization described in sec_501 in a determination_letter dated xxxxx a foundation follow-up letter was issued xxxxx that confirmed its exempt status under sec_501 and further defined as not being a private_foundation under sec_509 in its articles of incorporation xxxxx stated its purpose i sec_2 to operate exclusively for charitable scientific literary or educational_purposes included but not limited to making gifts and contributions to organizations that qualify as exempt_organizations under sec_501 of the internal_revenue_code of or the corresponding provision of any amendment to the united_states internal_revenue_code to do and engage in any lawful activities that may be incidental or reasonably necessary to any of the foregoing purposes to provide that in all events and under all circumstances the following provisions apply form ac catalog number 20810w pagel department of the treasury- intemal revenue service publish no irs gov form 886a rev date explanation of items schedule no or exhibit tax identification_number name of taxpayer xxxxx year period ended xxxxkx xxxxx c this corporation shall never be operated for the primary purpose of carrying_on_a_trade_or_business for a profit xxxxx prepared and filed its articles of incorporation on xxxxx with the xxxxx secretary of state xxxxx’s board_of directors officers consisted of four individuals xxxxx president xxxxx director xxxxx director and xxxxx director xxxxx was also original incorporated of xxxxx xxxxx as a for-profit corporation established xxxxx which provided the same services as xxxxxk xxkkx and xxxxx were stockholders of xxxxx a c-corporation and both worked for xxxxx additionally xxxxx and xxxxx each owned a and xxxxx owned of xxxxx an s-corporation that provided software development and support for such programs as lead tracking trust software to enable direct transfer of funds from clients to credit card companies xxxxx was sold to xxxxx in xxxxx xxxxx was formed as part of acommon enterprise that included xxxxx and xxxxx a for-profit company started and part-owned by xxxxx and xxxxx among others during parts of xxxxx to xxxxx xxxxx conducted business in multiple office locations xxxxx xxxxx xxxxx xxxxx xxxxx xxxxxk and xxxokx per information provided by organization application - application_for recognition of exemption under sec_501 of the internal_revenue_code in its application_for exempt status internal_revenue_service form_1023 xxxxx stated that its activities would provide instruction and training of individuals for the purpose of improving their handling of financial matters activities to be performed include the following budget analysis development of a financial plan for the individual income verification analysis of secured and unsecured debt form a catalog number 20810w page2 department of the treasury - internal_revenue_service publish no irs gov schedule no or form rev janvary explanation of items 886a exhibit name of taxpayer tax identification_number xxxxkx xxkxxx year penod ended et other activities to be performed include educational seminars or educational forums for the public on budgetary credit and money management issues organization listed its financial support in order of size as follows fair share contributions of creditors individuals fees corporate donations individual donations the xxxxx form_990 part ill statement of program service accomplishments states counselors interviewed approximately big_number individuals to discuss financial and credit problems counselors work with families and individuals to tailor a budget to individual needs and goals big_number individuals were enrolled in our debt repayment program enrollee’s creditors are worked with to accept reduced monthly payments program works to eliminate judgments garnishments and help clients regain financial balance in their lives in response to information_document_request idr revenue_agent requested the percentage of time spent of each activity for xxxxx and xxxxx and xxxxx responded with the following percentages ty xxxx ty xxxx lectures seminars workshops telephone counseling pamphlets brochures books face to face counseling general administration total xxxxx cfo indicated that these percentages are estimates on best guesses at this time the overall time available to activities included three individuals whose duties were totally administrative in nature plus one individual whose duties were split between counseling activities and administrative duties outreach activity xxxxx provided a summary of educational outreach seminars that they had engaged in during xxxxx xxxxx and xxxxx three individuals xxxxx xxxxx and xxxxxx did most of the presentations during xxxxx and xxxxx xxxxx is the founder and president of xxxxx and xxxxx and xxxxx are certified counselors at xxxxx the following information was summarized based on calendars of presenters and copies of some agendas and outlines provided by xxxxx xxxxx listed events form ac catalog number 20810w page3 deparment of the treasury - intemal revenue service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer ‘tax identification_number ek year period ended xxxxx xxxxx for xxxxx and events for xxxxx and in xxxxx the number of attendees at each event varied significantly and was based on best guess estimates of xxxxx xxxxx was unable to provide any documentation on registration forms or other proof of who attended the seminars many of the seminars in xxxxx were not directed to the general_public but to organizations that could possibly provide future leads this included the university of xxxxx trustee’s xxxxx hospital xxxxx hospital patients account staff xxxxx hospital vp finance and staff additionally xxxxxx listed training of xxxxx staff and xxxxx staff which provide leads or housing counseling referrals to xxxxx one of the presenters was xxxxx who joined xxxxx in xxxxx and was a six term member of the xxxxx house of representatives many of his presentations were conducted within his constituency or he was a member or some other affiliation with respect to the group presentations included the xxxxx men’s club rotary club of xxxxx xxxxx chamber of commerce jewish community center and board_of trustee of xxxxx other seminars included the xxxxx national guard troops getting families ready for reduced income and xxxxx high school finance class representative xxxxx received the xxxxx award from the xxxxx association of the united_states which is given to civilians who have distinguished themselves over an extended period of time representative xxxxx was chair of the xxxxx and xxxxx committee in the xxxxx house of representatives in conjunction with the seminars xxxxx had compiled various hand-outs such as xxxxxx this handbook was intended to serve as an informational resource in taking steps towards a healthy financial future the handbook serves as an overview of information and services that are available to individuals additional information on the services xxxxx provide is available on the internet at xxxxx other handouts include xxxxx public housing agency xxxxx financial seminar this handout covers three types of financial categories productive preventive and remedial advertising based on records and information provided by xxxxx and interviews conducted xxxxx engaged in a number of advertising and marketing activities during xxxxx xxxxx and xxxxx specifically xxxxx utilized radio publications yellow pages internet including its own website to advertise its services lead generation companies and internet form au catalog number 20810w page4 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of ‘taxpayer xxxxx xxxxx tax identification_number xxxxx year period ended in some cases individual debt management plans dmp clients were enrolled by contractors who were paid commissions specifically xxxxx xxxxx enrolled a contract signed xxxxx indicates an agreement to pay xxxxx a monthly clients commission check in the amount of of client deposits in addition other documents indicate that leads were purchased from xxxxx for dollar_figure each xxxxx operates a website xxxxx and redirects leads to xxxxx per organization’s vendor ledgers purchases from xxxxx totaled dollar_figure xxxxx and dollar_figure dmps in the amount of dollar_figure xxxxx for xxxxx the xxxxx amount is from client deposits for the fee decreased to of client deposits in in xxxxx dollar_figure in other leads were obtained from xxxxx and xxxxx xxxxx and xxxxx xxxxx www xxxxx com xxxxx xxxxx www xxxxkx com and xxxxx www xxxxx com and xxxxx via www xxxxx org per organization’s vendor ledgers xxxxx and xxxxx purchases totaled dollar_figure dollar_figure dollar_figure which was xxxxxxed through xxxxx corp at dollar_figure per lead in xxxxx xxxxx also received calls from xxxxx national referral line in xxxxx xxxxx purchases totaled dollar_figure in xxxxx and in xxxxx and xxxxx cost of purchasing potential leads ranged from dollar_figure - dollar_figure per usable lead in xxxxx through xxxxx generally if the call lasted less than five minutes there was no charge in some of the contracts for lead purchases xxxxx could reject a lead if involved only secured debt it xxxxx’s website xxxxx dba as xxxxxx utilized its website to provide information to the general_public regarding its services the home page for xxxxx of xxxxx featured fifteen various topics with hot links credit counseling debt management program financial education financial charts immediate debt help and stop collection calls one of the head lines is xxxxx problems what’s your next move and below it is debt management program in a highlighted link debt consolidation and credit counseling in the middle of the first website page in highlighted orange is debt management program debt management program consolidate debt without a loan the website states that you could consolidate your unsecured debts into one payment and stop the collection calls without getting a loan would that help you it may be possible with a debt management program the page listed the benefits of debt management program as including form au catalog number 20810w page5 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer xxxxx - tax identificauon number xxxxx year peniod ended make only one monthly payment stop the harassing phone calls save thousands in interest on average our clients are debt free in to years rather than years without the program clients who complete the dmp have learned how to live comfortably without credit cards xxxxx is a consumer advocate e e based on searching http web archive org web xxxxx org xxxxxx s website has changed very little in content or appearance between xxxxx and xxxxx yellow page periodicals xxxxx used several methods of advertising and promoting the products and services that they could provide to potential clients yellow page advertising was typically purchased in locations near offices that could handle telephone and walk-in clients and in states they were register or licensed to conduct business in xxxxx incurred dollar_figure advertising in xxxxx yellow page advertising accounted for dollar_figure page ads in various locations throughout the country in xxxxx yellow page per account of general ledger advertising accounted for dollar_figure in xxxxx per account of general ledaer for vellow page for yellow the examples listed below tend to promote debt management plans non-profit status free consultation and get out of debt with one monthly payment and an urgency to get out of debt a qwest yellow page advertisement taking approximately page in xxxxx read get out of debt now stop harassing phone calls xxxxx consolidation with one payment state licensed bonded free consultation money management help customized programs to fit your needs a non-profit agency www xxxxxx org xxxxx call now sleep better tonight xxxxx lf busy call xxxxx on the same page there was also a single line advertisement for xxxxx with the same telephone number xxxxx a june xxxxx invoice from after an yellow page planning indicated that the xxxxx advertisement cost dollar_figure incentive discount the total amount due for the monthly yellow page planning invoice was dollar_figure organization advertised in various media including the xxxxx guardian city pages xxxxx women’s press and xxxxx media a xxxxx guardian ad reads get form a i-1994 catalog number 20810w page6 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number xxxxkx xxxxx xxxxx year penod ended out of debt stop harassment reduce interest rates fees creditors free consultation call xxxxx www 2xooo org let us deal with your city pages xx advertisement reads get out of debt free debt help loss of income monthly payments too high worried about your credit report stop harassing phone calls let us deal with your creditors local non-profit agency call at xxxxx x0ookxx www xxxxxxxxx org xxxxx women’s press advertisement reads xxxxx problems what's your next move know your options stop harassing phone calls one simple monthly payment confidential consultation xxxxx formerly xxxxx financial a xxxxx- based non-profit organization call xxxxx at xxxxx or xxxxx for a free consultation care and can help www xxxxxx org’ xxxxx magazine advertisement reads xxxxx problems what's your next move credit card unsecured debt consolidation save thousands in interest make one monthly payment eliminate late fees stop collection calls fora private non-judgmental consultation xxxxx xxxxx certified counselor out of xxxxx call toll free xxxxx free budget counseling xxxxx non-profit state licensed agency member xxxxx xxxxx press advertisements read stop collector calls we can help lower payments reduce interest stop late fees debt consolidation free debt counseling non-profit call xxxxx xxxxx www xxxxxxx org a march xxoxxx insertion order had a rate per week of dollar_figure xxxxx it required a prepaid check in the amount of dollar_figure vendor ledgers purchases from xxxxxx press service totaled dollar_figure for xxxxx xxxxx xxxxx and per organization's in xxxxx per general ledger for xxxxx organization purchased dollar_figure per account in publication ads and dollar_figure in xxxxx newspaper ads accounted for dollar_figure per general ledger for xxxxx organization purchased newspaper ads in the amount of dollar_figure for newspaper advertising per account and newspaper ads of dollar_figure for publication ads and dollar_figure radio advertising analysis of the vendor ledger for xxxxx revealed that xxxxx paid xxxxx for radio ads theses ads aired on january february dollar_figure xxxxx in xxxxx xxxxx contracted with xxxxx radio again to air sixty second advertising spots and a link to xxxxx and k102 radio stations in the amount of dollar_figure _ xxxxx paid for live ads to be run from july xxxxx august form avi-1994 catalog number 20810w page department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number xxxxx xxxxx year penod ended xxxxx and september xxxxx xxxxx also paid for link from radio website to xxxxx website the script for xxxxx radio promotion was as follows ok so here’s what happened to me just loved my credit cards oh and they loved me because as now the more you charge the more credit you get then it just all piled up and was charging my groceries that’s smart interest over the next eight years for a carton of milk and a frozen pizza and let me tell you doing the credit card shuffle is not the answer either you know when you shift one card’s balance to another then missed a couple payments all of the sudden the credit card people started calling and then harrasing hey i’m a good person i've just had some bad luck then a friend told me about xxxxx xxxxx has counselors that gave me a free nonjudgemental consulatation we worked out a payment plan that gave me one lower monthly payment and a lower interest rates on many of my credit cards getting those creditors off my back and paying off my debt faster xxxxx will put an end to your credit problems too call xxxxx toll free phone number xxxxx for an easy private free consultation that’s xxxxx you’ve got nothing to lose but your debt call xxxxx a portion of voice over spot for xxxxxx is as follows wake up from the debt nightmare log on to xxxxx com and click on the xxxxx logo to sign up for a free confidential consultation xxxxx is a local xxxxx cities company that has many programs to get you out of debt find out how go to xxxxx com and click on the xxxxx logo to fill out an appointment form and you'll instantly be registered to win concert tickets from xxxxx log on to xxxxx com now and click on the xxxxx logo you've got nothing to lose but your debt public relations on may xxxxx xxxxx entered into an agreement with xxxxx inc to serve as public relations counsel for the 24-month period beginning july xxxxx and ending june xxxxx the agreement calls for a total not to exceed dollar_figure 3ach xxxxx will continue its area local in equal monthly installments of dollar_figure regional and national public relations program on behalf of xxxxx included in public relations agreement is a detailed review and update of xxxxx press media kit the billable form ac catalog number 20810w page8 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date j explanation of items schedule no or exhibit name of taxpayer tax identification_number xxxxk year penod ended xxxxx eee budget did not include travel lodging or reasonable meals and expenses travel media destinations in xxxxx included xxxxx xxxxx scheduled for late may xxxxx xxxxx scheduled for late july greater xxxxx scheduled for late august early september and xxxxx xxxxx scheduled for october in review of xxxxx’s travel reimbursement information for xxxxx and xxxxx it was noted that on average at least once a month mr xxxxx provided paid dinners or lunches to xxxxx president and in some instances his wife to dinners paid for by xxxxx it would appear that xxxxx being the client would not be entertaining the vender the agreement did not call for local meals to be provided by xxxxx leads yellow page advertising and public relations consultant accounted for - of total expenditures_for xxxxx - xxxxx enrollment of consumers in dmps by xxxxx employees employees’ qualifications and training leads that were acquired were distributed to xxxxx’s employees for phone contact with the consumers xxxxx regularly engaged leased employees who purportedly operated as counselors hereinafter referred to as employees many of the employees have social service backgrounds and experience in medical-related industries advertisements for counselors requested that counselor candidates have strong communication and problem solving skills the position description provided by xxxxx for its counselor listed the following responsibilities and duties dated xxxxx always keep the client as the main focus of counseling by assuming that the client is in financial crisis consistently using the counseling model in talking to the client attain at least level two counseling skills consistently within the first six months of employment enter all leads into the lead tracking system capture all data needed to determine the best option for the client as well as information needed by the creditors o o cover handle appropriate share of all leads including phone calls internet leads and face-to-face appointments follow-up with contacts already in lead tracking early morning counselors to be available for phone consultation during the first hours of their workday late evening counselors to be available for phone consultation during the last hours of their workday form ac catalog number 20810w page9 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number xxxkx xxxxx xxxxx year period ended available to receive incoming counseling phone calls an average of hours per day minimum of new clients enrolled per month participate in counseling evaluation process as described collect accurate client information from the client during the counseling session to include names and addresses spelled properly correct grammatical conventions used obtain all available locating information such as home phone work phone and fax email address and social_security_number all packets are to be complete and ready for processing before being sent to data processing help the client through the initial enrollment process by following up to make sure that materials were received calling if materials are not returned within two weeks and answering client questions until the transfer to account management has been completed hour work week involved in the rotation of saturday work schedule be punctual and ready to work when scheduled manager must approve all vacations sick time and personal out of office appointment sec_15 to become a certificate holder from the institute of personal finance or equivalent within_12_months of hire and to take the test for certification within months of hire basic qualifications and requirements for the position are listed as follows a b c d college degree preferred excellent communications skills ability to see situations in terms of numerous variables and present a holistic picture of the situation ability to use personal computer willingness to learn new software as necessary the advertisements for counselor - xxxxx office accepting inbound calls seeks person w strong communication skills person must be multitask oriented possess problem-solving skills and have the ability to develop customer relations compensation range is dollar_figure - dollar_figurek with excellent benefits no minimum level of education was required for applicants to be hired no certification license or prior experience in the field of counseling was required per response to idr item xxxxx does not require any specific past skills training form au catalog number 20810w page10 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number ee xxxxx xxxxx year penod ended or schooling although we have some preferred skills sets such as strong oral communications and either a psychology sociology or counseling background per agenda for new counselor training xxxxx provided one week of training for new hires for xxxxx and xxxxxx the first day was mainly an overview of training employee paperwork and counselor technique and community involvement day two consisted of listening to other counselors on the telephone day three consisted of evaluation process lead tracking funds management and data processing day four listen to counselors role playing listen to tapes take calls marketing and lead distribution and international standards for quality management systems iso requirements day five was listen with counselors and or take calls and counselor expectations per interviews with current and former employees they indicated two weeks of training was conducted at the headquarters office in xxxxx xxxxx but no agenda was provided for the second week by xxxxx xxxxx maintained a split skill report monthly on all employees to track time spent on different activities xxxxx tracked the number of acd calls per employee automatic call distribution this line is for new incoming calls that are potential new leads xxxxx also tracked acw automated call waiting - notes and paperwork agent ring time other time aux time - includes out-bound calls available time - ready for calls and staff time - time logged onto phone in an e-mail dated november xxxxx xxxxx director of counseling communicated to counselors that they are doing a great job but there are areas of needed focus the two areas discussed are leads handled and scheduled coverage he indicated as a whole they are doing a much better job of entering leads and collecting our clients contact information but they still are experiencing a significant number of leads that are not being entered it is critical to xxxxx growth to capture all of our leads and to improve on data integrity these two items account for of evaluation rating of employees and are important that they are available for incoming calls - new potential leads and inputting correct information in lead tracking for future potential dmp clients financial growth of company is dependent on increasing dmps xxxxx's employees were trained to establish a clear purpose or motive for the counseling session gather financial information and identify the problem offer solutions for the client’s review develop a detailed plan for implementation of a solution to resolve their financial problem and confirm that the solution fits the purpose credit counseling procedure ccp-75-01 possible solutions include a self administered plan debt management program personalized plan and bankruptcy ccp-62-01 counselor development compact disks provide taped telephone calls with examples of questioning by the counselors some callers were interested in debt management plans dmps form ac catalog number 20810w pagel department of the treasury - internal_revenue_service publish no irs gov explanation of items schedule no or exhibit form 886a rev date name of taxpayer xxxxkx tax identification_number xxxxkx xxxxx year period ended _ solely for reduced interest rates and payments but the counselors were instructed to fully develop their financial situation and determine the best solution they were told that creditors would not accept dmps from individuals who have adequate cash_flow and only want to reduce their interest rates credit card fees and payment amounts or would be rejected if their fico score was too high xxxxx’s training manual contains instructions for employees on its counseling model and a flow chart for counseling procedure ccp-75-01 the manual contains instructions geared to enrolling individuals in dmps including assembling dmp packets and client action plan with necessary educational information additional instructions state to provide non-dmp clients with specific educational information and referrals as is pertinent to the client’s situation and include a step-by-step accounting of the solution in the client action plan to be sent to the client counselors are also instructed to update lead tracking for follow-up counselors update lead tracking upon receipt of a completed dmp client information packet once a complete dmp client information packet is received the counselor contacts the client confirms their plans and transitions the client to account management personnel with xxxxx inc a for-profit entity formally owned by president xxxxx and former president xxxxx included in the manual is counselor position description ccf-55-03 counselor call evaluation process ccp-62-01 counseling procedure ccp-75- and counseling performance compensation ccp-62-02 counselor position description requires a counselor to attain at least level two of four counseling skills consistently within the first six months of employment n addition it requires a minimum of new dmp clients enrolled per month performance compensation document requires a minimum of client action plans caps per month and every cap must be presented to the client with contact information including e-mail address and telephone numbers this is to ensure that all clients receive a documented overview of their situation with an action plan current counseling employees were evaluated based upon counseling call evaluations leads handled availability to clients schedule coverage and retention of dmp clients employees were compensated based upon points awarded for the performance categories compensation may be adjusted up or down after three out of four consecutive ratings are achieved employees were required to enroll a minimum number of dmp accounts to keep their jobs employees were also required to pass the institute for personal finance counselor certification exam within eighteen months of hiring_date as a counselor passage is now required within twelve months of commencing employment form ai catalog number 20810w page department of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items tax identification_number schedule no or exhibit year period ended xxxxxk e-mails from the director of counseling reflect revisions to counseling performance compensation documents and a continuing concern about the productivity of the employees and methods to measure quantity over quality of counseling sessions personnel action notices indicated warnings for failure to reach the minimum standard for clients signed onto dmps for a month counseling performance was measured and evaluated in five categories counseling call evaluation rating sec_40 leads handled availability to counsel the client schedule coverage and client retention performance and compensation tabulations take the points given from the above categories according to the counseling performance document ccp-62-02 rev d points awarded for the performance categories could result in advancement in compensation level however in order to advance from level to level the minimum number of signs dmps must be achieved for that increased level ccp-62-02 rev a the counseling performance document ccp-62-02 rev d provided the following compensation structure to employees dollar_figure level requires a minimum average of signs per month dollar_figure level requires a minimum average of signs per month dollar_figure level requires a minimum average of signs per month example states that if a counselor's score in the five categories was qualified for dollar_figure a year and the counselor was at the dollar_figure level and had an average number of signs they would advance to the compensation level of dollar_figure example stated that if a counselor's score in the five categories was qualified for dollar_figure a year and the counselor was at the dollar_figure level and had an average number of signs they would remain at the dollar_figure compensation level compensation of employees was geared toward increasing sales of dmps some employees were eligible for overtime pay but the management claims that there were no bonuses or incentives offered although the organization's general ledger showed overtime and no bonuses or dba xxxxxx payroll invoice for the period june incentive pay the xxxxx to five leased employees xxxxx shows bonuses paid in the amount of dollar_figure xxxxx xxxxx xxxxx xxxxx and xxxxx who work as counselors xxxxx provided leased employees and provided human resources and payroll for xxxxx for a monthly fee form ac catalog number 20810w pagel3 department of the treasury - internal_revenue_service publish no irs gov schedule no or form rev date explanation of items exhibit 886a name of taxpayer tax identification_number xxxxx xxxxx year period ended vere the taped phone conversations in counselor development recordings disclosed a dollar_figure enrollment fee for its program this enrollment fee facilitates the payment of leads and incentives to the employees in a typical call with a potential client the employees introduce themselves as employees of xxxxx a non-profit corporation and advise that they can help the potential client with paying their debts employees begin by telling prospective clients they have helped thousands of clients in similar situations and they drastically reduce the time it takes to pay off their xxxxxs months to pay off all debts they advise that instead of clients paying individual creditors they only have one payment to xxxxx which will pay creditors at the lowest rates normally with no penalties they further advise that the program will pay the potential client's debts off faster and save thousands in interest employees go down the list by creditor name credit type credit card auto loan secured unsecured total debt balance whether current or late and use creditor provided minimum balance tables to arrive at a proposed payment employees ask clients how much income they have coming in each month how much their living_expenses are rent utilities telephone food etc and how much is left that can be used to pay xxxxxs employees enter the responses to the income and expense questions on their computers employees mail a client action plan with an agreement document and an authorization to release information document to the client to complete and mail back to the employee counselors update lead tracking upon receipt of a completed dmp client information packet once a complete dmp client information packet is received the counselor contacts the client confirms their plans and transitions the client to account management personnel with xxxxx when a customer agreed to a dmp the individual signed an agreement which provided for the monthly payments on the debt balances it also provided for an additional percent over disclosed debt balances for undisclosed debts and service fees xxxxx advertised its services on its website www xxxxx org it also had two brochures in which it advertised its services to the general_public a ‘housing counseling and a xxxxx problems brochure the brochures are used to generate client interest in its debt management program in the brochure xxxxkx claims xxxxx offers a debt management program that helps the consumer consolidate all unsecured debt we work directly with creditors to lower or waive interest rates and late fees our clients pay off their debts in a shorter amount of time debts that qualify for the debt consolidation program include credit cards medical xxxxxs department store cards bank lines of credit collection accounts nsf checks unsecured personal loans student loans and irs balances the brochures are handed out during outreach events and activities organization also has a 42-page form au catalog number 20810w pagel4 department of the treasury - intemal revenue service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer xxxxx tax identification_number wooeox year period ended xxxxk financial health handbook which is distributed for free organization also sold a book xxxxx for dollar_figure each debt management plans the primary activity engaged in by xxxxx during the years xxxxx 0oox and xxxxx was telephone counseling of individuals in financial distress organization purchased advertisements and leads for telephone solicitation and consultation of clients to enroll in debt management plans hereinafter dmps potential clients were individuals with unsecured debt a dmp is a plan whereby a client makes monthly payments to xxxxx to satisfy his her unsecured debts over a year period most of the debts handled in a dmp were credit card debts but other unsecured debts such as hospital xxxxxs student loans and payday loans were also managed through some dmps the monthly payment made by the client would include the payment to each creditor plus a monthly maintenance fee an example provided by xxxxx of an xxxxx-debt management plan and budgeting exercise and prioritization of debts finances to xxxxx of 20oxxx xxxoxkx who had total monthly income of dollar_figure available income of dollar_figure dollar_figure creditors provided by xxxxx for xxxxx john was accessed the maximum __ per month fee for a rate of and total amount due to xxxxx of dollar_figure agreement which in effect becomes another creditor for the client on six credit cards all of which pay fair share based on list of fair share and total monthly expenses of dollar_figure and proposed payment of dollar_figure with total unsecured debt of over the life of with total the maintenance processing fee varies depending on the amount of the payments it is based upon percent of the payments and ranges from dollar_figure per month to dollar_figure per month for xxxxx and xxxxx and the amount was changed in xxxxx based upon of the payments and ranges from dollar_figure per month to dollar_figure per month increase was due to reduction in the amount of fair share payments by credit card companies in addition each client pays a dollar_figure enrollment fee the organization contracted the for-profit service provider xxxxx dba xxxxx for data processing per organization’s services at a dollar_figure - dollar_figure monthly fee for each dmp client vendor ledaers purchases from xxxxx dba xxxxx for data processing totaled in xxxxx this dollar_figure accounted for over of xxxxx’s expenditures_for xxxxx xxxxxk and xxxxx in xxxxx and dollar_figure in xxxxx dollar_figure consultation screening form a catalog number 20810w page15 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items name of taxpayer tax identification_number year period ended xxxxx schedule no or exhibit xxkkk xxxxx generally operated as follows contact with a potential client would be made by telephone during the phone call the employee would ask probing questions to identify the purpose of the call and the root of the individual's problems employee would counsel the individual determine options and offer solutions to their problem if the individual was a good candidate the call would result in an attempt to enroll the potential client in a debt management plan the employee would ask the person for information regarding income expenses and unsecured debts that the individual currently had the employee would then prepare a personal information worksheet and creditor and proposal summary which contain personal information such as name address birth date etc employment information monthly expenses and a list of all debts to be covered by the plan the creditor and proposal summary would list the creditor information total debt and proposed monthly payment based upon a review of some client information sheets it does not appear that the amount of disposable income in the budget worksheet necessarily bore any relationship to the monthly payment required by the dmp in one case available income was dollar_figure proposed payment was dollar_figure after expenses of dollar_figure under the dmp in the amount of dollar_figure was barely able to cover the proposed monthly payment in another case the client’s monthly available income and very little active budgeting education or budgeting assistance was offered to the callers consultants gathered financial information to determine if individuals and the organization may benefit from their debt management services consultants listen evaluate and provide free advice client action plans and possibly literature to callers who would not benefit from or qualify for a dmp including callers without sufficient ability to pay their debts after their living_expenses on its xxxxx form_990 xxxxx reported it interviewed approximately big_number individuals and big_number were enrolled ina dmp on its xxxxx form_990 xxxxx reported it interviewed approximately big_number individuals and big_number were enrolled in a dmp during the year on its xxxxx form_990 xxxxx reported it interviewed approximately big_number individuals and big_number individuals were enrolled a dmp during the year xxxxx cfo reported total clients under debt management at end of xxxxx was big_number and at the end of xxxxx total was big_number client action plans - caps form aa catalog number 20810w pagel6 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer schedule no or exhibit year period ended xxxkx explanation of items tax identification_number xxxxx xxxxx client action plans caps included a greeting and information related to the the intent of this action plan is to impress upon you that your desire to in our recent conversation we conversation with the individual caller caps summarized the telephone conversation as follows improve your financial situation is an achievable goal explored and identified the best solution that will restore financial balance in your t follows with boxes checked of the consultant's perception of the individual's life situation and recommendation based upon the consultant’s understanding the choices for perception are as follows behind in unsecured debt reduction or loss of income family crisis personal crisis qo other emergency or unexpected expense supplementing income with credit behind on secured debt or utilities the choices for consultant’s recommendation include the following xxxxx - debt management plan increase your income reduce expenses bankruptcy legal counsel self-administered plan referred to other service a other prioritization of debts finances budgeting exercises oq educational course q repayment plan for mortgage pre-foreclosure short_sale on mortgage self-axxxxxnistered plan or bankruptcy revenue_agent found that organization often referred individuals with insufficient income to cover their living_expenses to a self-administered plan or bankruptcy however those who had sufficient income to cover living_expenses and some had unsecured debts were generally referred to dmps it appears that the consultants gather financial information to determine if individuals may benefit from a dmp and would meet creditor specifications for acceptance to a dmp client action plans were not widely used in xxxxx and xxxxx however dated xxxxx stated that perception of situation was a revenue_agent obtained some samples from the last couple of months of x0ocxx one cap for emergency or unexpected expenses and behind on secured debt or utilities it stated first step is to contact your landlord second step is to call the lease company that you have vehicle with and offer them a voluntary repossession third step is to call and request them to stop automatic payment and ask what they are willing to do as far as a payment plan fourth step would be to call me back after you get all of form a catalog number 20810w page17 department of the treasury- internal_revenue_service publish no irs gov schedule no or form 886a rev date explanation of items oe exhibit name of taxpayer tax identification_number xxkxx xxxxxk xxxxx year period ended these priorities taken care of so we can assist you with all of your unsecured debts personal loan loc credit card recommendation was o self-administered plan and prioritization of debts finances another cap recommending a self-administered plan to xxxxx and xxxxx dated xxxxx stated that their current budget doesn’t reflect that you have the resources to start paying down this debt xxxxx’s recommendation is to simply ignore the collector and continue to provide for your family the consultants also included some information that will likely help stop some of the collection efforts when your husband finally gets a wage increase would recommend that you contact me so we can review your situation again and determine the best plan to resolve the student_loan a cap with o behind in unsecured debt and o other collection calls recommends a self-administered plan to xxxxx stated that i understand that you want to consolidate your xxxxxs but until you have a job and have a steady income that option simply doesn’t make much sense ’ve enclosed some information on the fair debt collections practice act for you so you can understand your rights as a consumer as well as information on how to get him to stop calling you another cap with o behind in unsecured debt recommends a self- administered plan for xxxxx indicating you are in no financial position to pay any of the credit cards and am advising you to stop paying them at your age the small amount of social_security money you get each month just covers your living_expenses and it’s very important that you keep paying for your house utilities food and medicines companies your social_security money is not touchable by any of these credit card a cap for xxxxx dated xxxxx for o reduction or loss of income the counselor recommended bankruptcy legal counsel and stated i strongly recommend that you file a chapter bankruptcy you simply don't make enough money to support your basic living_expenses as well as your debts when you mentioned that you had fallen behind on your rent but were current with most of your credit cards that was a clear indication that you were sacrificing your basic needs to repay your debts debt management plans form ac catalog number 20810w page18 department of the treasury - internal_revenue_service publish no irs gov explanation of items schedule no or exhibit form 886a rev date name of taxpayer - xxxxx tax identification_number year period ended xxxkx xxxxx debt management plans dmp were marketed as providing benefits and a needed bill-paying service to clients the recommendation for the debt management program as a solution advised the client that it would allow them to get control_over their personal debts by reducing the payment and interest rates and most importantly reduce the stress that their current financial situation was causing based upon a review of some client information sheets it does not appear that the amount of disposable income in the budget worksheet necessarily bore any relationship to the monthly payment required by the dmp in one case available income was dollar_figure__ _tand proposed payment was dollar_figure available income after expenses of dollar_figure monthly payment under the dmp in the amount of dollar_figure was barely able to cover the proposed in another case the client’s monthly i written client action plans were not widely used in xxxxx and xxxxx however revenue_agent obtained some samples during the later part of xxxxx one cap indicated that a standard debt management plan would require only one payment per month lower their interest and provide the ability to rebuild their credit due to paying creditors as agreed however it would not reduce their monthly payments and they could not use credit while on this program for example xxxxx and xxxxx of xxxxx xxxxx had a very large amount of unsecured debt and were perceived as behind in unsecured debt xxxxx and xxxxx were recommended to enter an xxxxx-debt management plan as the best solution that would restore financial balance in your life the cap stated if you can afford your current payments of jer month this plan should work well for you if your goal is to pay off debt about dollar_figure payment there may be another alternative we can discuss if you cannot afford a dollar_figure that would require much more effort on your part but is capable of getting the payments down to about dollar_figure xxxxx per month that cap was signed by xxxxx president of xxxxx of xxxxx xxxxx stated after you do your budget if you feel that you payment do think our debt management program would be a can still afford a dollar_figure good fit for you if you can’t afford dollar_figure continue to do what you are doing right now and not pay them anything understand that you feel a creditors can do to you and they certainly cannot arrest you little uneasy with that but as we discussed there is very little your per month would recommend that you simply another cap for xxxxx and xxxxx without a perception of your situation box checked stated would recommend that you do a budget for both the business and personally and determine what it cost you to live and what it costs you to keep the business running after that let’s determine how much you have left over to cover your debt load it further had an our recommendation for your situation box checked form ac1-1994 catalog number 20810w page19 department of the treasury - internal_revenue_service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx schedule no or exhibit year penod ended xxxxx xxxkx xxxxx-debt management plan debt management program would be a great solution for you control_over them by reducing the payment and reducing the interest rates and most importantly reduce the stress that your current financial situation is causing you and your family it stated as for your personal debts do feel that our it would allow you to get account management upon receipt of a completed dmp client information packet counselors updated lead tracking once a completed dmp packet was received the counselor contacted the client confirmed their plans and transitioned the client to account management personnel with xxxxx inc xoxoxxxx when a customer agreed to a dmp the individual signed an agreement which provided for the monthly payments on the debt balances it also provided for an additional percent over disclosed balances for undisclosed debts and service fees if offered a dmp the client usually was required to payadollar_figure enrollment fee and a monthly maintenance fee for the service the maintenance processing fee varied depending on the amount of the payments it was generally based upon - percent of the payments and usually ranged from dollar_figure todollar_figure xxxxx in xxxxx the maintenance fee was raised from dollar_figure-dollar_figure the increase in processing fee was due to the reduction in fair share payments received from the creditors the monthly payment made by the dmp client would ordinarily include a payment to each creditor plus a maintenance fee for the dmp service ser month for xxxxx and per month up to for example in xxxxx xxxxx and xxxxx agreed that xxxxx could retain of their dollar_figure in january xxxxx xxxxx agreed that xxxxx could retaindollar_figure in debts payment for of dollar_figure monthly payment for of dollar_figure monthly payment on dollar_figure debt payment on dollar_figure of her dollar_figure in debts monthly ofhisdollar_figure in october xxxxx xxxxx of xxxxx agreed to a monthly maintenance fee of in debt payments on balances of in debts xxxxx’s case was provided as an example of a xxxxx dmp client dollar_figure dollar_figure who achieved reduced interest rates and other savings through the dmp monthly payment for ondollar_figure for individuals agreeing to a dmp the maximum maintenance fee was determined based upon the state in which the clients reside in july xxxxx xxxxx of xxxxx agreed that xxxxx could retain only dollar_figure xxxxx maximum of his dollar_figure monthly payment or of dollar_figure in debts however in xxxxx payment on dollar_figure form ac catalog number 20810w page20 department of the treasury - intemal revenue service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx schedule no or exhibit year period ended xxxkxk xxxxx xxxxx and xxxxx from xxxxx were required to pay a monthly charge of dollar_figure of their dollar_figure approximately dollar_figure debt payment their debts were monthly payment for of dollar_figure free or below cost services while dmp services were not limited to low-income or the poor some dmp clients had their fees waived xxxxx xxxxx indicated that xxxxx had of big_number of clients enrolled in dmps at no charge in xxxxx and of were enrolled at no charge in xxxxx general ledger enrollment fee income indicates that at least in xxxxx and at least big_number in big_number paiddollar_figure xxxxx xxxxx also indicated that of big_number dmp clients and of big_number dmp clients did not pay for monthly services in xxxxx and xxxxx respectively in xxxxx and at least big_number paiddollar_figure monthly expenses of dollar_figure however some seemingly low-income clients were required to pay enrollment fees and monthly maintenance charges a long-term customer sally with steady dmp activity ranging from november xxxxx to june xxxxx indicated monthly income of onlydollar_figure dmp payment of dollar_figure of dollar_figure dollar_figure payment xxxxx case was provided as an example of a xxxxx dmp client who achieved reduced interest rates and other savings through the dmp monthly payment her monthly maintenance charge was of her monthly debt sally was required to pay a monthly maintenance charge of dollar_figure - of her of available income and proposed this dmp client had total debts of dollar_figure and an agreed total anddollar_figure xxxxxx’s client unable to pay procedures amp-75-02 document implemented in xxxxx discloses a system and instructions on criteria for account management to use for evaluating accounts in which clients are unable to afford or make the scheduled payments there also appears to be a grant refund or temporary loan for clients who are in true need and through investigation and interviewing of client determined to be a good risk and candidate for the successful completion of the dmp this determination was made by account management and process completed by funds management xxxxx’s management provided printouts of clients whose enrollment fees and or maintenance fees were waived in xxxxx and xxxxx the printouts showed that many individuals who enrolled with the monthly fee waived also dropped from the dmps before payments were made the most recent date dropped was in xxkxxkx another distortion of the information is that certain states do not allow credit counseling organizations to charge a monthly fee or initiation fee for administering dmps form a catalog number 20810w page2 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number year penod ended xxxkxkx xxxxkx xxxxx xxxxx sometimes provided dmp services below its cost for individuals agreeing to a dmp xxxxx sometimes charged the individuals monthly maintenance fees less than the dollar_figure maintenance fees were waived but xxxxx still paid xxxxx a monthly fee per month paid on the xxxxx contracts also some ordollar_figure in substance the creditors’ fair share payments helped to pay the for-profit’s service charges in violation with the credit card companies’ requirement that fair share only be paid to organizations exempt under sec_501 for example a january xxxxx customer authorization agreement indicates that an xxxxx client xxxxx agreed that could retaindollar_figure monthly payment to xxxxx her debts were approximately dollar_figure xxxxx client xxxxx agreed that xxxxx could retaindollar_figure to xxxxx in february xxxxx client xxxxx agreed that xxxxx could retain dollar_figure of dollar_figure were approximately dollar_figure companies helped subsidize the monthly service charges of dollar_figure on the xxxxx contracts per month as compensation_for axxxxxnistration of the program her debts in these cases the fair share revenues from credit card in september of monthly payment per month of her dollar_figure ordollar_figure of dollar_figure per month paid compliance report by xxxxx department of commerce the xxxxx department of commerce conducted a compliance examination for close of books november xxxxx and the physical review of the books commenced on december xxxxx and close on december xxxxx in the report it was noted that budgets of eleven dmp clients did not prove that a repayment plan was feasible for the client the budgets in file were handwritten and submitted by xxxxx however a computer inputted budget by the counselor did indicate that a budget was feasible for several of the accounts consent to alter payment amount was not documented in file the dmp clients are listed below remaining monthly monthly amount dmp client name xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx _ xxxxx date of agreement xxxxx_ dollar_figure xxxxx dollar_figure xxxxx_ dollar_figure xxxxx_ dollar_figure xxxxx dollar_figure xxxxx_ dollar_figure xxxxx debt _ income_ expenses _ monthly income dollar_figure _ldollar_figure _ dollar_figure dollar_figure _ dollar_figure idollar_figure _ dollar_figure _ dollar_figure dollar_figure _i dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure idollar_figure idollar_figure idollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figurei dollar_figure - - form 886-a -1994 catalog number 20810w page22 department of the treasury - internal_revenue_service publish no irs gov explanation of items schedule no or exhibit form 886a rev date name of taxpayer tax identification_number xxxxkx xxxxx xxxxx year penod ended ts _ xxxxx xxxxx rs xxxxx e xxxx xxxxx dollar_figure xxxxx dollar_figure xxxxx dollar_figure xxxxx _ dollar_figure - dollar_figure ts _ dollar_figure dollar_figure _ ldollar_figure idollar_figure i _ dollar_figure in reviewing personal information worksheet prepared by an employee of xxxxx which included dollar_figure the expenses listed included phone - dollar_figure car payment-dollar_figure for client xxxxx it showed month income of dollar_figure of other income and total expenses of dollar_figure rent mortgage of dollar_figure insurance - dollar_figure dollar_figure monthly dmp of dollar_figure for failure this budget does not allow for any unexpected expenses such as auto repair entertainment clothes etc no analysis is provided or study done on tracking expenses for a month or two to determine what this client was spending per month to determine if this dmp will work clearly this is too limited a budget which has a high potential groceries-dollar_figure __ _ available income listed is dollar_figure and miscellaneous dollar_figure utilities - anda in the information provided by xxxxx to xxxxx department of commerce in the form of a rebuttal they provided the personal information for account which anda showed a change in monthly expense by after dmp payment clearly these two examples dmp of dollar_figure show that if a client has positive cash_flow be it minimal xxxxx will enroll a client in a dmp to show available income of showing an excess of dollar_figure another area sited by xxxxx department of commerce was seventeen client per occasion accounts where xxxxx charged fees for dishonored checks of dollar_figure based on review of the contracts no mention of a fee being charged for nsf non- sufficient funds checks was disclosed on the client authorization agreement xxxxx fee was sited for was if a client had an nsf check there account was charged adollar_figure__ which was not included in the contracted amount xxxxx in its ach agreement fee would be charged automatic withdrawal authorization they do disclose thatadollar_figure for nsf checks unless prohibited by state law xxxxx also requests authorization to withdraw from my our account as indicated above and up to ten percent more if required by my creditors understand that will be notified of any such change xxxxx was required to refund some of these amounts since trust accounts were under xxxxx statutes for some of its clients board_of directors in the form_1023 application the members of the board_of directors were listed xxxxx director xxxxx as follows xxxxx president compensated dollar_figure director and xxxxx director form a catalog number 20810w page23 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number year period ended xxxxx in xxxkk article - directors - general powers states that the property affairs and business of the corporation shall be managed by the board_of directors the board_of directors shall be elected by the current board_of directors at their regular meeting and any special meeting a director elected for an indefinite term shall serve until the director's successor is elected a director elected for a fixed term of office which shall not exceed five years board members and officers of xxxxx during xxxxx xxxxx and xxxxx and their background are as follows xxxxxx director- xxxxx is currently a self-employed medical device product xxxxx was a product resource manager at xxxxx an consultant until early international distributor of medical products previously xxxxx owned and operated a medical manufacturing company xxxxx xxxxx received a ba dearee in marketing which included from xxxxx college xxxxx lives in xxxxx he was paid board pay and travel reimbursement for xxxxx xxxxx director - xxxxx joined the board on august xxxxx x0cxxx retired from xxxxx where he was corporate director of compensation during hi sec_38 years with xxxxx besides working in human resources xxxxx also held positions in their production facilities and managed their customer service_department since retiring xxxxx keeps busy as a volunteer with xxxxx a consulting group helping start-up companies xxxxx and his wife make their home in xxxxx x00ooxx xxxxxx director and chief financial officer - xxxxx was chief financial a medical device manufacturer from january xxxxx to june _ xxxxx served as the financial officer fro xxxxx officer at xxxxx xxxxx prior to xxxxx xxxxx inc and xxxxx inc from xxxxx through xxxxx xxxxx was employed in _ xxxxx has also worked in public accounting and financial management at xxxxx as an auditor with xxxxx of xxxxx xxxxx received a bs degree in accounting from the university of xxxxx and is a certified_public_accountant xxxxx and his wife make their home in xxxxx xxxxx xxxxxx president - xxxxx is the founder of xxxxx he served as president from xxxxx through xxxxx when he resigned to become president of xxxxx __ a processing service_organization serving the credit counseling industry xxxxx in january xxxxx xxxxx returned to xxxxx as its president previously xxxxx was president of xxxxx and of xxxxx and additionally worked as a national brand manager for xxxxx and in mergers and acquisitions for xxxxx xxxxx’s formal education includes a ba degree in sociology and a three year concentrated course of form ac catalog number 20810w page24 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items xxxxx schedule no or exhibit year peniod ended xxxxx tax identification_number study in physics both at the university of xxxxx xxxxx and his wife live in xxxxx xooxxx xxxxx former board member - deceased april of xxxxx xxxxx was nominated and approved at a board meeting dated xxxxx xxxxx has some unique experiences and skills that have already been utilized by the organization relative to determining that the agency desires to be an integrated or open system not hindered by punitive rules and regulations but rather freeing employees to pursue the agency's mission xxxxx motioned that xxxxx be nominated to the board_of directors of xxxxx he provided contractual work with xxxxx through his corporation xxxxx inc xxxxx received dollar_figure also received compensation committee for xxxxx for his duties as a board member he was part of the from xxxxx in xxxxx for his consulting services he as can be seen above the list of board members they are either officers or business associates per minutes dated august xxxxx it was noted a discussion on addition of board members the board discussed the need to increase the size of the board the directors concluded there was no need to increase the number of directors at this time in the january xxxxx board minutes the following was noted the directors discussed the possibility of expanding the board to five members the directors acknowledged the desirability of expanding the board but only if qualified xxxxx agreed to review their candidates could be identified the directors and contacts for possible candidates based on review of the board minutes it was noted that directors and president xxxxx met between four and six times per year to discuss business concerns and activities of xxxxx prior to the president of xxxxx financial management was xxxxx who was also chairman of the board some time there after the position was changed to meet iso accreditation during the june xxxxx it was noted that only xxxxx and xxxxx each provided two names of potential replacements for board member xxxxx who passed away on april xxxxx executive of xxxxx and xxxxx a cpa and business consultant xxxxx offered names of xxxxx a retired during board_of director meeting held july xxxxx a quorum was declared based on the following directors xxxxx via telephone xxxxx via telephone and also xxxxx president and xxxxx after the interview the directors and xxxxx met privately to discuss xxxxx candidacy the unanimous decision was that the directors believed xxxxx would be a valuable addition to the board and was contacted by xxxxx to offer the position this is another example of the how the board is not form ac catalog number 20810w page25 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer explanation of items tax identification_number schedule no or exhibit year period ended ook - xxxxx independent of the officers of the organization and the president overseen by the board and accountable to the board xxxxx was involved in the hiring process of who is to be xxxxx cfo found the candidate back office service provider-xxxxx inc on xxxxx xxxxx entered into another agreement with mook inc a for-profit corporation back office service provider owned by xxxxx xxxxxk and xxxxx when this agreement was consummated xxxxx was the president of xxxxx and xxxxx xxxxx has been provided certain services xxxxx was the president of xxxxx pertaining to the conduct of its credit counseling business from xxxxx xxxxx the agreement is for five year duration and continues on a year to year basis unless otherwise modified in writing during this period xxxxx xxxxx and xxxkxx were each owners of xxxxx since the agreement also states that should xxxxx lose the ability or desire to cease involvement in debt management and business and credit counseling it agrees to allow xxxxx to negotiate the transfer of xxxxx clients to another non-profit agency of its choosing the agreement calls for a fee of dollar_figure per active client per month active clients are defined as those listed in active status on the database at the end of the month regardless of whether they have made a payment during that month the agreement goes on to state that as xxxxx’ largest credit counseling agency customer xxxxx requests and xxxxx agrees that all incoming telephone customer service calls will be answered xxxxx to eliminate confusion between the client or creditor and xxxxx customer service personnel the signers of the agreement were xxxxx secretary treasurer of xxxxx and currently the cfo of xxxxx and xxxxx xxxxx president of xxxxx and owner of stock at time of agreement and current president of xxxxx which became effective in xxxxx in xxxxx xxxxx dba xxxxx purchased the stock of xxxxx dba xxxxx in consideration for each of xxxxx’s and xxxxxany xxxxx's fifty percent of plus the stock of xxxxx xxxxx and plus interest the payment of the purchase_price will interest for a total of dollar_figure be ten percent on january xxxxx with the remaining payments made monthly over a five year period plus an annual interest pincite of outstanding balance xxxxx each received from xxxxx dollar_figure form a catalog number 20810w page26 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items tax identification_number schedule no or exhibit year period ended xxxxx xxxxx also agreed to a noncompete agreement not to work in the credit counseling business for a period of three years following the closing xxxxx agreed to pay premium for xxxxx's cobra continuing health covered for months and additionally consideration xxxxx agrees to pay the xxxxxdollar_figure additionally xxxxx purchased the stock of xxxxx herein after referred to as xxxxx a for-profit corporation that provided computer and software support xxxxx agreed to purchase of xxxxx’s and xxxxx xxxxx’s stock and each received dollar_figure on january xxxxx with the remaining payments made monthly over a five year period plus an annual interest pincite of outstanding balance plus interest the payment of the purchase_price will be ten percent effective march xxxxx xxxxx repurchased the remaining outstanding common_stock not owned by the organization by issuing a note payable of dollar_figure to be payable to xxxxx owner of the redeemed stock and president of xxxxx after redemption of stock and merger of organization into xxxxx leased_employee of xxxxx xxxxx became a the acquisitions were accounted for using the purchase_method of accounting in xxxxx the excess cost over net assets acquired in the transactions was dollar_figure and dollar_figure years which is being amortized on a straight-line basis over five in during xxxxx xxxxx and its outside accounting firm xooxxx reviewed the value of its goodwill and determined that its goodwill in relation to the purchase of bringing xxxxx and xxxxx was impaired xxxxx reduced its goodwill by dollar_figure the value to zero the impairment which was recognized in operations in xxxxx is based on the change in business plan for the subsidiaries xxxxx and xxxxx and their decision to be a service bureau exclusively for xxxxx rather than other credit counseling agencies by reducing goodwill to zero in xxxxx the organization wrote-off of the perceived value intangible assets of xxxxx within two years of purchase of stock the board_of directors approved in the minutes for january xxxxx the appointment of the current xxxxx board to serve as board_of xxxxx additionally the board instructed xxxxx to call a shareholder meeting of xxxxx for purpose of electing a new board xxxxx and xxxxx were nominated as candidates thus ensuring that xxxxx had effective_control over xxxxx president of xxxxx xxxxx was elected to be the vice form ac catalog number 20810w page27 department of the treasury internal_revenue_service publish no irs gov xxxkx form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identificauon number year period ended xxxxx xxxxx the merger and takeover of xxxxx was driven by two fold gain control of board and cash_flow from monthly dmp clients xxxxx prior to being sold to xxxxx it actively sought exempt c credit counseling organizations to provide back office client services compensation -xxxxx-president and founder information which has been made available from xxxxx indicates xooxxx’s o xxxxxx is as shown in the following table xxxxx was the chief_executive_officer of xxxxx compensation during the time period during this period of time rr kk dollar_figure dollar_figure ‘beginning of year year end dollar_figure dollar_figure _ veginning of year year end effective january xxxxx xxxxx’s salary was adjusted to the board_of directors of xxxxx takes action on salary levels of _ xxxxx at xxxxx’s compensation to at the august xxxxx board_of directors annually to be effective on at the january xxxxx board_of directors meeting the the xxxxx meeting the board approved an increase in_ dollar_figure meeting september xxxxx compensation committee agreed that at the board_of directors meeting of november xxxxx increased from dollar_figure salary increases came at a time when overall revenue was declining from dollar_figure xxxxx to dollar_figure xxxxx’s salary was these in to be effective december xxxxx xxxxx’s salary would remain at in xxxxx to dollar_figure in response to idr xxxxx stated that xxxxx compensation benefits ‘xxxxx reported on form_990 for xxxxx xxxxx and xxxxx for xxxxxand were determined by the compensation committee the compensation committee of the board_of directors relied on the consumer credit counseling industry compensation survey conducted and published by r d brown company the compensation committee also factored into its decision the cost of living increases into the survey findings in the minutes dated xxxxx xxxxx cfo and secretary treasurer of board presented the findings of a salary survey conducted by xxxxx related to officers’ compensation in the consumer credit counseling industry in previous discussions with _ xxxxx the agent was informed that he did not know how study was obtained and was not an employee at the time which seems to contradict the minutes of xxxxx board members xxxxx and xxxxx attended meeting via telephone also in form 886-ac catalog number 20810w page28 department of the treasury - intemal revenue service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items xxxxx schedule no or exhibit year period ended xxkxx tax identification_number attendance at the meeting was xxxxx president of xxxxxx in this same meeting the board decided on salary for xxxxx and xxxxx during the examination of the books_and_records it was brought to light that xxxxx took potential clients to lunch or dinner to discuss debts on average xxxxx ceo had received several perks which were not disclosed in the minutes for xxxxx through xxxxx these included tax preparation and advisory fees for his personal form_1040 and state tax returns term life_insurance paid_by xxxxx with xxxxx’s family as beneficiaries xxxxx also provided internet service and hook-up at this personal_residence cell phone and corporate credit cards on numerous occasions _ xxxxx entertained potential clients when not in out of town travel status three to four nights per week and many times on friday and saturday night what is troubling with this behavior is why is xxxxx providing some potential clients a free meal while others must call the toll-free number or come into one of xxxxx’s offices additionally it is disclosed based on travel vouchers that only ceo counseling during dinner meetings one such person was his future wife xxxxx she also accompanied him on some trips this shows a pattern of control and abuse by the founder of this organization with minimal oversight cfo and board member xxxxx approved these vouchers the compensation listed above for ceo xxxxx did not include all his fringe_benefits that he had received form_990 part five was incorrectly completed xxxxx provided debt revenue sources in response to idr request xxxxx indicated that it enrolled big_number big_number new clients in years xxxxx and xxxxx respectively xxxxx also indicated that the number of clients that enrolled for free for xxxxx was out of or and out of or enrolled for free in xxxxx the number of clients that did not pay any portion of the requested fee for monthly services for xxxxx was of big_number or and of big_number or for xxxxx these numbers did not separate the fees that could not be charged due to prohibition by some states who do not allow an initiation or monthly fee to be charged per interviews with current employees they rarely waived the monthly fee and generally were not based on income but rather the client requesting waiver of fee or from a state that did not allow monthly fees to be charged it was more common for the initial fee of dollar_figure to be waived versus monthly fee form 886-a catalog number 20810w page29 department of the treasury - internal_revenue_service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx schedule no or we exhibit year period ended xxxxkk xxxxx according to its form_990 xxxxx generated total revenue of dollar_figure xxxxx respectively revenue was generated from four main sources and dollar_figure for the years dollar_figure kxxxx xxxxx and amounts received from creditors which were classified as fair share revenue the monthly fee of debt from dollar_figure to dollar_figure per month for xxxxx xxxxx and of debt from dollar_figure to dollar_figure per month for xxxxx from each participant who enrolled in a debt management plan client enrollment fee of dollar_figure per client enrolled in a debt management plan and waived for hardship or request housing counseling - paid dollar_figure per xxxxx mortgage holder for a meaningful call housing counseling started in june of xxxxx the remainder of income was from the sale of the book xxxxx for dollar_figure per book sold amount revenue type ty xxxxx of total amount rev xxxxx ty xxxxx amount ty xxxxkx of total rev xxxxx amount tyxxxxx fo of total rev xxxxx dollar_figure dollar_figure fair share revenue monthly fees dollar_figure dollar_figure client enrollment fees housing counseling book sales other total less than dollar_figure less than dollar_figure dollar_figure dollar_figure dollar_figure e dollar_figure dollar_figure dollar_figure dollar_figure t of total rev x0xxxx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure a __ for xxxxx xxxxx xxxxx and xxxxx overall amounts paid_by consumers to xxxxx for services constitute approximately and of total revenue respectively form 886-a catalog number 20810w page30 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number year peniod ended xxxxxk xxxxx xxxxx in a letter dated october xxxxx from xxxxx bank to xxxxx a leased_employee of xxxxx was to advise them of their current fair share amount as of november xxxxx based on xxxxx bank analysis they were given a rating of out of a possible overall performance determines fair share for exceptional performance for outstanding performance for agencies meeting expectations and for agencies needing improvement this letter was provided by xxxxx in response to idr item the criteria to meet is percentage of missed payments month to month size of payment average risk score at time of set up to come up with overall performance the letter goes on to explain how to improve your fair share the purpose for setting up performance program - to give you reachable objectives that will help our card members and build revenue for your agency and xxxxx as can be gleaned from this letter fair share payments do not have a donative_intent but are payments for servicing credit card companies in a letter dated july xxxxx from xxxxx provided xxxxx with an update regarding xxxxx’s voluntary fair share requirements an agency must be compliant with all standards in order to be eligible for voluntary fair share fair fees maximum dollar_figure start_up dollar_figure monthly a c b c rps payments d decline rate e effective with august xxxxx xxxxx fair share payout e rps full budget proposal f accreditation e accreditation process must be completed by august xxxxx to qualify for a fair share payout in september xxxxx since xxxxx missed the rps proposal with full budget they did not receive any fair share for the period from xxxxx expenditures according to the form_990 xxxxxx’s total expenditures_for xxxxx xxxxx xxxxx were dollar_figure looking at four expense categories that were clearly identifiable as expenses associated with the dmp process - leads advertising and xxxxx back- office interest fees on note payable to xxxxx and xxxxx and amortization of goodwill associated respectively at minimum and dollar_figure form ac catalog number 20810w page31 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items name of taxpayer tax identification_number schedule no or exhibit year penod ended xxxxx xxxxx xxxxkx with purchase of back office and interest on notes payable to xxxxx and xxxxx the following was noted expense of xxxxx expenses _ total xxxxx expenses of total of total xxxxx expenses expenses expenses leads advertising dollar_figure xxxxx back office dollar_figure _ expense sec_11 dollar_figure dollar_figure dollar_figure dollar_figure interest fees to xxxxx and xxxxx dp’s for notes payable for purchase of xxxxx _ dollar_figure amortization - goodwill from purchase of back office - xxxxkx overall dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure excluding any payroll expenses the annual average amount of xxxxx’s overall expenditures on the dmp process plus purchase of back - office represented of its total expenses this figure does not include the labor costs of xxxxx involved in the processing of dmps nor does it include the postage and overnight delivery costs or the telephone fees billed by xxxxx if included would cause this figure to be even higher mortgage counseling during the course of the examination xxxxx provided copies of u s department of housing and urban development hud approval for xxxxx to operate as a housing counseling agency to provide mortgage delinquency loss mitigation and money debt management counseling the approval covers two-years the name and address of xxxxx will appear in hud approved housing counseling agencies and be included in the toll-free number referral service provided by hud mortgage assistance income from xxxxx accounted for of revenue for xxxxx and for xxxxkx in the board_of director minutes for xxxxx dated january xxxxx f xxxxx discussed there involvement with xxxxx xxxxx the 200ocx was established in mid-xxxxx as a consortium of three credit counseling agencies and xxxxx to provide third party intervention for home owners who had fallen behind in form 886-ac1-1994 catalog number 20810w page32 department of the treasury - internal_revenue_service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx xxxxx schedule no or a exhibit year period ended xxxkk flat fee to the agencies for counseling their their mortgage payments xxxxx pays a clients no matter what the outcome the xxxxx is looking to expand the number of creditors involved as sources of referrals xxxxx proposed that all three credit counseling agencies to contribute up to dollar_figure to help fund the expansion with the contribution being paid over six months out of the fees generated the motion was passed by the board in an article written by xxxx x titled money troubles xxxxx is blazing new trails in helping delinquent borrowers get out of financial trouble its partnership in xxxxx is saving borrowers from foreclosure next stop is xxxxx xxxxx and xxxxx for its innovative programs in mortgage banking dated june xxxxx discusses xxxxx and credit counseling organizations involved in the joint_venture xxxxx managing director of the company’s xxxxx xxxxx stated that they had found three agencies xxxxx xxxxx xxx xxxxx xxookx and xxxxx yoox xoookx that together gave xxxxx nationwide coverage through transfers from its own loan servicing call centers the overreaching concept of xxxxx was to transform loss mitigation and keep families in their homes the article goes on to state since the start of xxxxx it has engendered big_number counseling sessions says xxxxx as to the effectiveness of counseling the company hasn't yet completed a control-group study because that usually involves a two-year look back to see whether a program has worked the majority of the loans referred to counseling were seriously delinquent and percent of the loans we counseled are now current xxxxx says however couldn't say that is was specifically because of counseling that those loans are current xxxxx is providing a service to xxxxx to work with their clients which is really outsourcing their work to a non-profit organization the clients are being referred by xxxxx and xxxxx receives a dollar_figure fee the fees collected are not being used for education but rather to generate more business and revenue foreclosure costs to xxxxx could amount up to of the outstanding loan balance which includes delinquent interest that does not get paid and the expenses over an average of months it takes to foreclose fix it up and resell a property so the cost savings to xxxxx is enormous tax-exempt credit counseling organizations xxxxx alabama revrul_69_441 c revrul_65_229 c xxxxx free public education yes nominal in yes major xxxxx activity yes no form 886-a catalog number 20810w page33 department of the treasury - interna revenue service publish no irs gov form 886a rev date explanation of items xxxxx xxxxx name of taxpayer tax identification_number schedule no or exhibit year penod ended xxxxx xxxxx and xxxxx free individual counseling _ debt yes major activity yes of management counselors’ time plans yes yes yes yes yes yes about of calls end in dmp - large percentage of calls come from paid leads through web- sites eo pays a fixed amount per lead waived for hardship must request reduction or waived fees no sliding scale formal procedures started in xxxxkx fees and initiation monthly fees fair share xxxxx - xxxxx - fair share monthly fees initiation fees and xxxxx counseling fees xxxxx - fair share monthly fees initiation no yes nominal yes fees for dmps yes nominal waived for hardship amount of revenue from fees incidental amount none minor main support from fair share and contributions form 886-a catalog number 20810w page34 department of the treasury - internal_revenue_service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx schedule no or exhibit year period ended xxxxx xxxxx fees and xxxkx dollar_figure substantive call counseling fees public support contributions from gov't some amount some amount not specified not specified community private found board - board members one board member all members represent the united way from general_public is also cfo not a public board public n a no only fair share and enrolled clients law sec_501 of the internal_revenue_code provides that an organization described in sec_501 is exempt from income_tax sec_501 of the code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual the term charitable includes relief of the poor and distressed sec_1 c -1 d income_tax regulations the term educational includes a instruction or training of the individual for the purpose of improving or developing his capabilities and b instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 in other words the two components of education are public education and individual training sec_1_501_c_3_-1 of the regulations provides that in order to be exempt as an organization described in sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section test it is not exempt if an organization fails to meet either the organizational_test or the operational sec_1_501_c_3_-1 of the regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages form au catalog number 20810w page35 department of the treasury- internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number xxkkxk xxxkx xxxxx year period ended primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test 326_us_279 educational_purposes include instruction or training of the individual for the purpose of improving or developing his capabilities and instruction of the public on in better business useful and beneficial subjects bureau of washinaton d c inc v united_states 326_us_279 the supreme court held that the presence of a single non-exempt purposes if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university sec_1_501_c_3_-1 similarly in 302_f2d_934 ct_cl the court considered the status of an organization that provided analyses of securities and industries and of the economic climate in general the organization sold subscriptions to various periodicals and services providing advice for purchases of individual securities although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non-exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt for this it charged no fee in the case of consumer credit counseling service of alabama inc v u s a f t r 2d d d c the district_court for the district of columbia held that a credit_counseling_organization qualified as charitable and educational under sec_501 it fulfilled charitable purposes by educating the public on subjects useful to the individual and beneficial to the community sec_1 c - d i b were also educational and charitable the debt management and creditor intercession activities were an integral part of the agencies’ counseling function and thus were charitable and educational even if this were not the case the court viewed the debt management and creditor intercession activities as incidental to the agencies’ principal functions as only approximately percent of the counselors’ time was applied to debt management programs and the charge for the service was nominal considered the facts that the agency was publicly supported and that it had a board dominated by members of the general_public as factors indicating a charitable operation see also credit counseling centers of oklahoma inc v united_states the court found that the counseling programs the court also form 886-a catalog number 20810w page36 department of the treasury- intemal revenue service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items xxxxx schedule no or exhibit year period ended xooxxkk tax identification_number u s t c d d c in which the facts and legal analysis were virtually identical to those in consumer credit counseling centers of alabama inc v united_states discussed immediately above the organizations included in the above decision waived the monthly fees when the payments would work a financial hardship the professional counselors employed by the organizations spent about percent of their time in activities such as information dissemination and counseling assistance rather than those connected with the debt management programs the primary sources of revenue for these organizations were provided by government and private_foundation grants contributions and assistance from labor agencies and united way 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 4973_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 c b 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 an organization formed to educate people in hawaii in the theory and practice of est was determined by the tax_court to a part of a franchise system which is operated for private benefit and therefore should not be recognized as exempt under sec_501 of the code 71_tc_1067 although the organization was not formally controlled by the same individuals who controlled the for-profit entity that owned the license to the est body of knowledge publications and methods the for-profit entity exerted considerable control_over the applicant’s activities by setting pricing the number and frequency of different kinds of seminars and training and providing the trainers and management personnel who are responsible to it in addition to setting price for the training the court stated that the fact that the organization's rights were dependent upon its tax-exempt status showed the likelihood that the for-profit entities were trading on that status the question for the court was not whether the payments made to the for-profit were excessive but whether the for-profit entity benefited substantially from the operation of the organization the court determined that there was a substantial private benefit because the organization was simply the instrument to subsidize the for-profit corporations and not vice versa and had no life independent of those corporations form ac catalog number 20810w page37 department of the treasury - internal_revenue_service publish no irs gov explanation of items tax identification_number form 886a rev date name of taxpayer xxxxx schedule no or exhibit year period ended xxxxx xxxxx the service has issued two rulings holding credit counseling organizations to be tax exempt revrul_65_299 1965_2_cb_165 granted exemption to a c organization whose purpose was to assist families and individuals with financial problems and to help reduce the incidence of personal bankruptcy its primary activity appears to have been meeting with people in financial difficulties to analyze the specific problems involved and counsel on the payment of their debts the organization also advised applicants on proration and payment of debts negotiated with it did not restrict its services to the needy creditors and set up debt repayment plans it made no charge for the counseling services indicating they were separate from the debt repayment arrangements it made a nominal charge for monthly prorating services to cover postage and supplies for financial support it relied upon voluntary contributions from local businesses lending agencies and labor unions revrul_69_441 1969_2_cb_115 granted c status to an organization with two functions it educated the public on personal money management using films speakers and publications and provided individual counseling to low-income individuals and families as part of its counseling it established budget plans ie debt management plans for some of its clients the debt management services were provided without charge the organization was supported by contributions primarily from creditors providing education to the public the organization qualified for sec_501 status by virtue of aiding low income people without charge as well as the credit repair organizations act croa u s c et seq effective date imposes restrictions on credit repair organizations including forbidding the making of untrue or misleading statements and forbidding advance_payment before services are fully performed u s c 1679b significantly sec_501 organizations are excluded from regulation under the croa the croa defines a credit repair organization as a any person who uses any instrumentality of interstate commerce or the mails to sell provide or perform or represent that such person can or will sell provide or perform any service in return for the payment of money or other valuable consideration for the express or implied purpose of- i improving any consumer's credit record credit history or credit rating or ii providing advice or assistance to any consumer with regard to any activity or service described in clause i form a catalog number 20810w page38 department of the treasury - intemal revenue service publish no irs gov explanation of items name of taxpayer tax identification_number year period ended form 886a rev date xxxxx schedule no or exhibit xxxxx xxxxx u s c 1679a the courts have interpreted this definition broadly to apply to credit counseling agencies the federal trade commission's policy is that if an entity communicates with consumers in any way about the consumers’ credit situation it management group llc 21_fsupp2d_424 n d n j is providing a service covered by the croa in re national credit businesses are prohibited from cold-calling consumers who have put their phone numbers on the national do-not-call registry which is maintained by the federal trade commission c f_r b iii b c f_r sec_64 c sec_501 organizations are not subject_to this rule against cold-calling because c organizations are exempt from regulation under the croa and the cold- calling restrictions organizations that are involved in credit repair have added incentives to be recognized as sec_501 organizations even if they do not intend to operate primarily for exempt purposes government position the primary activity of xxxxx was not educational or charitable as defined under internal_revenue_code its regulations or legal precedence the primary activity was the enrollment of debtors in debt management plans xxxxx operations were not consistent with organizations described in sec_501 of the code and its exemption should be revoked enrolling clients on a dmp is not an educational activity xxxxx is not engaged primarily in activities that accomplish an exempt_purpose it did not exclusively serve a charitable_class such as low-income individuals it did waive fees and provide some services free or below cost if a dmp was desirable to creditors organization operations have an inherently commercial nature and it provides services to any caller accepted by the creditors then services are provided at market rates allowed within the state of residence it operated to serve a substantial non-exempt purpose if a caller has ability to pay the purpose of xxxxx’s activities differs substantially from those of the organizations in revrul_65_299 revrul_69_441 and consumer credit counseling service of alabama inc v u s which further an exempt_purpose its counseling activity is nothing more than an interviewing activity xxxxx screens consumers to market and sell dmp services there is very little education provided to consumers who contact or are contacted by xxxxx from lead tracking employees were evaluated not on the ability to provide in this case xxxxx engages in minimal activities form ac catalog number 20810w page39 departmen of the treasury - internal_revenue_service publish no irs gov form 886a rev date name of taxpayer xxxxx explanation of items xxxkx schedule no or exhibit year period ended xxxxx tax identification_number good education or counseling services to clients but on their ability to identify the appropriate solution for their problem through mass screening the evaluation of employees encouraged interviewing potential dmp candidates producing the required monthly or quarterly client action plans and signing and retaining new dmp clients each month counselor compensation rewarded enrollments of consumers in dmps and did not encourage any meaningful education or credit counseling to take place the training manual reinforces this work environment by setting production goals for employees to produce caps and enroll new dmp clients per month this equates to of client calls ending up on dmps as organization goal unlike the credit counseling organizations described in the revenue rulings referred to above and in consumer credit counseling service of alabama inc v u s xxxxx provides very little counseling or education to its clients many of the changes that xxxxx has implemented during xxxxx through xxxxx have been a direct result of catering to the requirements of credit card companies and the amount of fair share they will pay for servicing their clients the credit card companies are looking for credit counseling organizations that are efficient in transferring funds and retaining clients on dmps including size of payment and fico risk of client which will enrich both organizations it is in the best interest of the credit card companies to retain card holders since it can cost up to dollar_figure in promotions to obtain new clients xxxxx claimed to have engaged in educational outreach activity with various community groups however much of the activity was not geared directly to the individuals but organizations that could provide potential future leads which are needed for xxxxx to grow through the increase in dmps xxxxx engaged in extensive advertising activities in order to generate clients the procurement of clients was essential to the organization’s objective to market its debt management plan dmp only by having clients sign up for dmps could xxxxx generate revenue by having such client pay fees and creditors pay fair share and provide business to xxxxx xxxxx did not otherwise have an active program of soliciting charitable_contributions they used the monthly fees and fair share revenue to purchase new leads at dollar_figure - dollar_figure per usable lead in xxxxx through xxxxx generally if the call lasted less than five minutes there was no charge clearly the only reason to expend these funds was to obtain potential dmp clients which would in turn increase revenue which enables the ceo and cfo to increase their salaries the magnitude of xxxxx’s advertising is reflected in the percent that advertising expenses represent to the overall expenditures of the organization specifically and of the overall expenditures were spent on advertising marketing and form ac catalog number 20810w page40 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items schedule no or exhibit name of taxpayer tax identification_number xxxxx xxxkx xxxxx year period ended public relations during xxxxx xxxxx and xxxxx respectively the primary advertising expense was the purchase of leads and yellow page advertising and an increase in purchases of second spots of airtime on local radio stations in xooxxx in some instances the radio advertisement spoke directly about dmps for example an advertisement on radio station xxxxx read in part xxxxx has counselors that gave me a free nonjudgemental consulatation we worked out a payment plan that gave me one lower monthly payment and a lower interest rate on many of my credit cards getting those creditors off my back and paying off my debt faster this describes a dmp and not counseling in addition xxxxx was provided dmp clients by contractors who were paid a commission specifically xxxxx a for-profit entity xxxxx enrolled clients both organizations needed each other xxxxx enrolled them with creditors in order to use their exempt status to obtain fair share provide clients to back office service provider to collect dollar_figure or dollar_figure fee and pay a commission to xxxxx as long as clients continued there enrollment in a dmp through xxxxxx this relationship had started in xxxxx and had continued through xxxxx these clients were not provided educational training or of client deposits into xxxxx trust information by xxxxx in xxxxx dollar_figure accounts was from xxxxx provided clients these clients were tracked by x10ooxx in order to determine if the clients remained on dmps this is clearly evidence that xxxxx was more concerned in obtaining clients for dmps rather then educating clients on budgeting and finances clearly this is an example of operating in a commercial manner instead of educational or charitable xxxxx employees were compensated based on the amount of business they brought in and were threatened with being fired for not bringing in enough business employees received minimal training on how to provide educational counseling to clients on personal money management for the most part the employees had communication or social service backgrounds and they were trained to sell dmps to consumers whether the consumers’ situations warranted it or not did not enable an employee to even know whether a dmp would serve the best interests of a potential customer the employees are required to take a self study course on financial counseling which is paid for by xxxxx however most new counselors are on the telephone taking calls within weeks of being hired with no financial counseling background or education and generally will take them -12 months to pass the test and become certified the course is equivalent to a four credit college course in fact the training xxxxx dba xxxxx merged with xxx in december of xxxxx due to a change in xxxxx statutes that no longer required a non-profit to be incorporated in form 886-ac catalog number 20810w page4 department of the treasury - internal_revenue_service publish no irs gov form 886a rev date explanation of items tax identification_number year period ended name of taxpayer xxxkx xxxxx xxxkxx schedule no or exhibit xxxxx to operate a credit counseling business xxxxx dba xxxxx which stock was purchased by xxxxx in december xxxxx and liquidated its assets into xxxxx in xxxxx this enabled the founders xxxxx and xxxxx to cash_out of business and leave xxxxx with a considerable debt load if xxxxx had set up its own processing center as part of the exempt_organization function they would have only been able to remove the funds of the charity through compensation both xxxxx and xxxxx had very limited risk of loss with for-profit business xxxxx since there investment was only furniture anddollar_figure -_in capital in addition xxxxx had bought assets client accounts on dmps from exempt_organizations in xxxxx and xxxxx the value of these organizations was the cash_flow of clients on dmps of its xxxxx was not operated with public support and public control it was controlled by xxxxx xxxxx as ceo and xxxxx the cfo who is also chairman of board the board has had minimal turnover the ceo no longer is a board member as of due to meeting so international standards for quality management systems requirements currently there are three board members and one is an officer of xxxxx it was written in the board minutes the discussion of expanding the number of board members but has never moved forward some of the board members have worked as consultants to xxxxx so they have had a personal business_interest of being on the board xxxxx was privately supported in aggregate by credit card companies with over percent of its income in the form of fair share coming from credit card companies the control by the credit card companies of the credit counseling industry was evident by the review of applications of fair share xxxxx had submitted and responses to the applications the applications required that they be exempt under sec_501 fair fees charged to clients rps payments retention of clients accreditation and size of payments and risk of client determined the amount of fair share received because xxxxx is so dependent dmps fair share they are indirectly controlled by the credit card companies and not necessarily looking out for the best interests of clients the reason xxxxxx is organized as an exempt_organization is to avoid the regulatory scheme of the credit repair organizations act croa u s c section et seq croa was enacted to protect consumers by banning certain deceptive if xxxxx was a for-profit company the practices in the credit counseling industry in croa would prohibit it from charging fees in advance of fully providing services addition if xxxxx were for-profit federal_law would prohibit it from purchasing leads and making cold calls to potential customers because sec_501 organizations are exempted from the provisions of croa xxxxx is able to engage in deceptive business practices that congress intended to prohibit when it passed the croa law as such xxxxxx is operated for a substantial non-exempt purpose that of carrying on a business while avoiding federal regulation in addition xxxxx could not collect fair form ac catalog number 20810w page42 department of the treasury - inte mal revenue service publish no irs gov form 886a rev date xxxxx explanation of items xxxxx schedule no or exhibit xxxxkx name of taxpayer tax identification_number year period ended share payments from creditors if business depended on an organization having tax-exempt status it did not have exempt status the entire dmp exempt organization’s position the exempt organization's position has not been determined conclusion in summary xxxxx was not operated exclusively for educational or for any other exempt purposes within the meaning of sec_501 of the code since its primary activity is the sale of debt management plans xxxxx conducted minimal educational activities within the community provided minimal educational training or counseling to individuals 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 xxxxx did implement a formal procedure amp client unable to pay procedure some time in xxxxx to waive or reduce the fees for the indigents or to waive the fees for those to whom such fees would create financial hardship but managerial approval was required insuring its limited use in some cases clients with very low monthly income paid a higher percentage fee based on debt owed to creditors than some wealthier clients who had large amounts of debt and paid a maximum fee of dollar_figure or dollar_figure dollars consequently the debt management program did not serve a charitable_class since the primary activity of xxxxx was the sale of debt management plans which lacked substantial educational or charitable aspects its exemption under sec_501 of the code should be revoked effective january xxxxx form ac catalog number 20810w page43 department of the treasury- internal_revenue_service publish no irs gov