internal_revenue_service appeals_office first street suite san francisco ca number release date date april4 a b certified mail dear department of the treasury employer_identification_number person to contact employee id number tel fax _ uil this is a final adverse determination regarding your exempt status under sec_501 c of the internal_revenue_code the code it is determined that you do not qualify as exempt from federal_income_tax under sec_501 of the code effective date our adverse determination was made for the following reason s you are not operated exclusively for charitable educational or other exempt purposes as required in sec_501 you did not engage primarily in activities which accomplish one or more of the exempt purposes specified in sec_501 sec_1_501_c_3_-1 more than an insubstantial part of your activities were in furtherance of a non-exempt purpose contributions to your organization are not deductible under sec_170 of the code you are required to file federal_income_tax returns on forms file your return with the appropriate internal_revenue_service center per the instructions of the return for further instructions forms and information please visit www irs gov if you were a private_foundation as of the effective date of the adverse determination you are considered to be taxable private_foundation until you terminate your private_foundation_status under sec_507 of the code in addition to your income_tax return you must also continue to file form_990-pf by the 15th day of the fifth month after the end of your annual_accounting_period processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the code we will make this letter and the proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information we have provided to you in a separate mailing notice notice of intention to disclose please review the notice and the documents attached that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice if you decide to contest this determination you may file an action for declaratory_judgment under the provisions of section of the code in one of the following three venues united_states tax_court the united_states court of federal claims or the united_states district_court for the district of columbia a petition or complaint in one of these three courts must be filed within days from the date this determination_letter was mailed to you please contact the clerk of the appropriate court for rules for filing petitions for declaratory_judgment to secure a petition form from the united_states tax_court write to the united_states tax_court second street n w washington d c see also publication you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matters that may not have been resolved through normal channels get prompt and proper handling if you want taxpayer_advocate assistance please contact the taxpayer_advocate for the irs office that issued this letter you may call toll-free for the taxpayer_advocate or visit www irs gov advocate for more information if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours appeals team manager enclosure publication cc e n ii' 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 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 c of the internal_revenue_code code is necessary if you accept our fin ings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office considerauon 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 organlzations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes ihformation on your rights as a taxpayer and the lrs collection process you may also request that we refer this matter for technical_advice as explained n publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the su ject of the technical_advice -' letter catalog number 34809f i 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 section b of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the 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 affice of the taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you m ay contact your local taxpayer_advocate at if you have any questions please call the contact person t the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you thank you for your cooperation sincerelv acting director eo examinations enclosures publication publication report of examination letter catalog number 34809f form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx legend org final name of organization nn name of individual ein ein of the organization ur unrelated organization issue state state city city x amount xx year p program whether org operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 c a whether org is engaged primarily in activities that accomplish an exempt_purpose b whether more than an insubstantial part of org's activities is in furtherance of a non-exempt purpose c whether org was operated for the purpose of serving a private benefit rather than public interests facts background of org org employer_identification_number ein was incorporated on april 20xx as a not-for-profit corporation in the state of state nn was listed as the incorporator in the articles of incorporation aoi the article ii of the aoi stated its principal_place_of_business address as city state the article ill of the aoi stated the organization's specific purpose as follows we will be helping the community who needs financial help enter a debt management program that will help them get out of debt and educate them org filed form_1023 application_for recognition of exemption under sec_501 c of the internal_revenue_code on may 20xx for a publicly_supported_organization described under sec_509 and sec_170 with the internal_revenue_service service the service sent a follow up letter on august 20xx to inform the organization to amend its articles of incorporation in order to meet the organizational_test of sec_501 c org filed articles of amendment on september 20xx to amend the above article ill the amended article ill includes the requisite language as follows said organization is organized exclusively for charitable religious educational and scientific purposes including for such purposes the making of distributions to organizations that qualify as exempt_organizations under sec_501 c of the internal_revenue_code or corresponding section of any future federal tax code notwithstanding any other provision of this document the organization shall not carry on any other activities not permitted to be carried on a by an organization exempt from federal_income_tax under sec_501 c of the internal_revenue_code or corresponding section of any future federal tax code or b by an organization contributions to which are deductible under sec_170 of the internal_revenue_code or corresponding section of any future federal tax code form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationrraxpayer org explanation of items schedule numberor exhibit tax identification_number year period ended ein 20xx upon the dissolution of the organization assets shall be distributed for one or more exempt purposes within the meaning of sec_501 c of the internal_revenue_code of corresponding section of any future federal tax code or shall be distributed to the federal government or to a state_or_local_government for a public purpose any such assets not disposed of shall be disposed of by the court of common pleas of the county in which the principal office of the organization is then located exclusively for such purposes or to- such organization or organizations as said court shall determine which are organized and operated exclusively for such purposes nn signed the form_1023 and was listed as president of org nn listed as treasurer and nn was listed as vice president the activities and operational information as described in the form_1023 were solicit customers to enter the debt management program to help them reduce their interest lower their monthly payment and help them get out of debt within x to x months this will be about xo of time and resources committed to this activity this will allow the company to grow and be able to reach more people in the community this will be done in two ways advertise in the media through brochures and word of mouth we need to let the community know that we are here to help recruit independent companies to refer business to us so that we can grow the foundation educate the community about credit and how to use it effectively so they will not get into debt again this will include education on credit cards loans financial lenders homes and other credit that is available this will be about xo of time and resources dedicated to it it will be done by a professional from the community and will begin as soon as we have about xooo clients we will be offering classes brochures and other educational material to help clients processing contracts by writing proposal letters to the creditors so that the customers can receive the benefits of reduced interest and payments this process will take about xo of our time and resources depending on the amount of contracts that will be processed monthly we estimate about xxo contracts this will be done by a processor and begin immediately when we begin operating customer service we will continually be servicing these clients to ensure that they are receiving the benefits and that they continue in the program there will be a quarterly review for each client and a bimonthly call so that the customers are satisfied this activity will take about xo of our time and resource the organization's sources of financial support stated as nn will invest the initial investment of dollar_figurexx this will be a loan payable beginning in 20xx and if the non profit is able to pay me the amount will be dollar_figurexx per month until it is paid off the other source_of_income will be the dollar_figurexx to dollar_figurexx monthly charge to customers which is a token fee to handle their accounts this will cover postage phone calls letters to their creditor and customer service the other source will be x-x that the creditor will pay the foundation to help customers enter a debt management program form 886-a 1-199x page of32 department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx the irs recognized orgas a publicly_supported_organization described under sec_509 on october 20xx board_of directors org listed four directors on the form_990 as follows name nn nn nn nn title co mpensation president treasurer director director dollar_figurexx xxx dollar_figure dollar_figure dollar_figure nn is in charge of org's daily operations she is familiar with all the aspects of the debt management business before she began working at org she used to own a marketing company in that enrolled debt management clients for a non-profit company nn the vice president of org and nn director were not listed on the form_990 however nn worked for org and was compensated from march 20xx through may 20xx she was customer service manager at a debt management company before she worked for org nn helped org with accounting issues and general issues that the board encountered she did not specifically have experience in debt management minutes org held three board meetings in 20xx the issues discussed through the first meeting on january 20xx were summarized as follows as of january 20xx according to new law changes within the industry and irs org will no longer pay marketing fees and no longer have centers if the center chooses to send a contract the company will review the contract and choose to resume responsibility for the client or not org is in progress of getting certified by iso bsi by the end of march or early april changed the name of marketing department to educational outreach department this department will now advertise in radio and television and market themselves as an educational outreach program and offer educational information on debt and finances the company will offer free information and offer open meetings that they can attend this department will dedicate their resources to help the consumer or refer towards the proper road this department will perform a thorough evaluation and see if in fact the consumer qualified for the dmp or requires another service nn director offers information in regards to the laws of bankruptcy nn will contact the bankruptcy court to request current information the president reviews the company's expenses to all board members and breaks down numbers nn nn nn nn and nn signed the minutes the issues discussed through the first meeting on june 20xx were summarized as follows org moves its office to city form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationrraxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx org is pretty much done with all the requirements for iso certificate nn left org in may 20xx the issues discussed through the first meeting on october 20xx were summarized as follows nn resigned from the board on september 20xx org has received a grant from bank of ur for dollar_figurex for p program the program is designed to educate the client in the comfort of their homes and to pace the education at their convenience the program includes that org creates an individualized budget for each individual the individual will set short term and long term goals a financial education is sent to each individual see below for the detail of the p program org continues to struggle financially due to a diminishment in fair share org have not been able to get certified in iso because of insufficient funds org is selling some of its clients to pay off the debt it received offers from ur state at dollar_figurex in payments ur state at dollar_figurex per client ur state at dollar_figurex per client but retracted the offer stating that hispanic clients were worth less because they were unstable ur state at dollar_figurex per client and ur state at dollar_figurex per client the other part of the offer from ur is that a consulting company would help org stay in business by providing clients finance and other support to help org grow in addition the consulting company will pay off some old debt org has after discussing all five companies it was confirmed that ur was the best company for org the board agreed to sell all state and state clients tour and the monies will be used to pay off the debt to the president nn the president of org will have her salary reduced to dollar_figurex ooo per month org will have one certified counselor to handle the xoo clients org will continue to service no immediate advertising plans are at this time in january 20xx org held a board meeting on january 20xx the minutes stated org received an initial payment of dollar_figurex from ur ur a for-profit corporation for selling the clients of state and state ur later transferred x xxx clients they purchased from ur a non-profit corporation whose office was destroyed by hurricane nn but ur could not service these clients because ur is not a non-profit organization the meeting also stated that nn's salary will be raised to dollar_figurex per month activities in 20xx org enrolled xxx new clients to its debt management plans hereinafter dmps org had a total number of clients of xxx before it purchased more than x ooo clients from ur in november 20xx in that year org was in a difficult financial situation and decided to close its business it sold 31x dmp accounts tour a for-profit organization see asset purchase agreement for details to resolve its cash_flow problem part of the reason that org sold its dmp accounts to ur is that ur said it can help org stay in business by bringing in more dmp accounts to org ur sold org a total of x xxx dmp accounts that ur purchased from ur and other non-profit organizations these organizations closed their businesses because of hurricane nn ur cannot service those accounts because it is not a non-profit organization see debt management account purchase agreement for detail of the x xxx transferred clients x accounts became active and org agreed to pay ur dollar_figurex per account the payment on these accounts were on a monthly installment_agreement form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule-number or exhibit tax identification_number year period ended ein 20xx there was exactly no timeline when org was required to pay off the full amount for the purchase it also does not state how much org needed to pay for each installment org moved its main office from the city of city to the city of city in the midst of 20xx org hired x employees x worked in the customer service area and one provided financial education to the clients before it moved its office to the city of city org processed its dmp accounts by using its own employees in its city office however when it moved to the city of city it had only x employees and org signed a contract agreement with ur to process its dmp accounts asset purchase agreement org entered into an agreement with ur for the sale of org's clients the asset purchase agreement spelled out the purchase terms and price it is stated as follows purchase of dmp accounts ur shall purchase certain debt management accounts from org which accounts are located in ur's permitted states and which accounts the clients return ur's consent agreement including all rights of org respecting the dmp accounts of any nature kind and description whether tangible or intangible pertaining to said accounts without limiting the generality of the foregoing the dmp accounts shall include all work in progress together with all related work-product client files and information stored in any database maintained by org and existing as of the closing purchase_price the purchase_price for the dmp accounts the purchase_price will be x dollar_figurex per account which returns a signed ur client agreement and pay x x creditor payments from the consumer tour payable as follows a an initial good_faith payment in the amount of dollar_figurexx xxx oo will be paid to org as an advance toward the purchase_price ur will receive a credit for this advance toward the total purchase_price paid for the accounts this good_faith advance shall be paid within business days of the execution of this agreement by both parties b ur will pay org an advance equal to dollar_figurexx x0 representing x x of the dollar_figurexxx oo per account purchase_price less the advance credit of dollar_figurexx xxx oo after ur has received the first of the two consecutive creditor payments from the client on the transferred account c ur will pay the second m dollar_figurex of the purchase_price after receipt of the second consecutive creditor payments from the client on the transferred account less any advances which are outstanding d all payments to org shall become due and payable to org by ur on the fifth business_day following receipt of and proof of good funds received from the client form 886-a 1-199x page of32 department of the treasury-internal revenue service - - - - - - - - - - - - - - - - - - - - - - - - - - - - form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx debt management account purchase agreement org also entered into another agreement with ur to purchase dmp client accounts which ur purchased from ur ur did not provide any services on these accounts since they were located in other states where ur did not have a license to operate the agreement was executed as of oct 20xx by nn president and ceo of ur and nn the term of transfer states as follows transfer of dmp accounts ur shall transfer to org and org shall accept certain debt management accounts from ur which accounts are specified on exhibit including all rights of ur respecting the dmp accounts of any nature kind and description whether tangible or intangible pertaining to said accounts without limiting the generality of the foregoing the dmp accounts shall include all work in progress together with al related work-product client files and information stored in any database maintained by ur and existing as of the closing the effective date of the transfer shall be december 20xx all creditor payment received on or after the effective date shall be transferred to org and org shall be responsible for all payments due creditors on and after the effective date the purchase_price was blacked out once the clients were transferred to org in november of 20xx org made initial calls to the clients welcoming them to org and requesting new signed dmp contracts consultant agreement org entered into an agreement with ur ur hereinafter consultant to provide dmp processing services to the clients of org hereinafter client uris referred by ur as mentioned under the section of the minutes of board meetings the consultant agreement states as follows general consultant responsibilities be available to provide consulting services and advise client for a period of x months from the signing of this agreement on the areas of business management client development state licensing insurance and bonding government regulation vendor relationships software and computer systems training education and outreach program development and other necessary and desirable aspects of operating a credit counseling agency as requested by client guaranteed minimum gross_income for a period of xx months from the effective date of this agreement consultant guarantees client shall receive a minimum gross monthly income of x thousand dollars dollar_figurexx ooo hereinafter minimum monthly gross guaranteed said amount shall be calculated by adding together the total of all dollars received from each client in a debt management plan for set up fees monthly fees administration fees nsf fees and all other_amounts received excluding payments to disbursed to creditors plus the total amount received from creditors including but not limited to all fair share and any grants received and the amount of all fees received from any seminars or other educational programs conducted by client in the event a creditor pays fair share less often than monthly the amount received or due from said creditor shall be prorated into a monthly amount consultant shall form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx promptly make the payment of any short fall under this guarantee immediately in order that the debts and payroll of client can be timely paid the minimum monthly gross guarantee shall be reduced by the amount of any persons removed from payroll as of september 20xx and the amount of any savings obtained by consultant for the benefit of client client agrees to allow access to all accounting_records and bank statements of client and its officers and directors consultant compensation until client is servicing xoo consumers in its debt management plan consultant shall not receive any compensation client shall pay consultant dollar_figurexdollar_figure per month for each consumer it is servicing above xoo clients each month such compensation shall be due on the first day of each month for the previous month a consumer shall be deemed to be participating in a debt management plan if at any time during the month client received funds from that consumer the client made a monthly processing payment of dollar_figurexx the processing fee varied depending on the requirement of different states most states allowed the charge of dollar_figurexx oo per month of the dollar_figurexx org paid dollar_figurex0 to the ur there was no payment made to ur in 20xx org paid ur dollar_figurexxx ooo in 20xx and dollar_figurexxx x00 in the first half year of 20xx debt management program dmp qualification for a dmp org set the following requirements for its potential clients client must owe at least dollar_figurex ooo in unsecured debt client must be making the minimum payment to his her original creditors for x months client must be in such dire need to enroll that he has no other alternatives client must have had credit cards for at least months if client does not have enough disposable income to pay their accounts in the program org suggests they enroll only a partial number of credit card accounts and make arrangements for the other accounts to pay directly to their creditors steps to enroll in dmp once an individual calls org the customer service representative will go through the screening questionnaires to fill out client's personal information such as debt and income data into the computer_software program to evaluate if the individual qualifies for the dmp program when a potential client agrees to enroll in a dmp the first step is to mail out an enrollment package the client must fill out and sign the agreement and send them back to org once org receives the client's signed forms along with copies of their creditor statements they forward the information to the consultant for dmp processing the enrollment package includes a debt management program agreement and authorization agreement for automatic withdrawal of funds the debt management program agreement states as follows this agreement disclosure and authorization the 'agreement' is entered into by and between individual or individuals signing below 'client' and org its officers employees and agents all form 886-a 1-199x page of department of the treasury-internal revenue service --------------------------------- form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx hereinafter referred to as org to review its financial affairs which includes but is not limited to monthly budget living_expenses and outstanding debts client gives org full authority to work with and negotiate on its behalf with creditors to waive or reduce finance_charges interest rates and fees wherever possible if allowed in its companies' policies for credit counseling programs whereas client has outstanding financial obligations which have payments due on a monthly basis and client wishes to retain the services of org to develop and implement a debt consolidation re payment schedule client agrees to provide complete and accurate information regarding al debts and agrees that org inc has made no promises warranties or guarantees other than those as follows client has the right to review any file maintained by any consumer reporting agency org cannot guarantee the enhancement or improvement of a client's credit rating and or history and client understands it can assume no responsibility and or liability for past or future credit reporting org will develop and implement a payment schedule for client within a reasonable_time from the receipt of any fees and documentation provided to client client acknowledges and agrees that a monthly administrative fee of dollar_figurexx oo is included in the scheduled payment to org client acknowledges and agrees that any monthly payment quoted by org is based entirely on information provided by client at the time of application and additional debts as well as higher balances with creditors may result in an adjusted payment presented to client this initial figure is entirely an estimate client is advised and understands that in initiating the debt management plan there is a conversion period of up to xo days from the time that org receives all the client creditor information and documentation during this conversion period org will be attempting to obtain new payment terms with all your creditors as a result non-delinquent clients are advised that it may be necessary to continue to make timely minimum payments to their creditors until the new terms are in effect client acknowledges that their credit report may reflect a consumer credit counseling status org is not responsible nor can it repair credit rating that may appear on client's credit report past present or future client acknowledges and agrees that his her prompt initial payment and monthly on-time payments are a vital part of the debt management program this agreement shall be governed by and interpreted under the laws of the state of state excluding the conflicts of laws provisions thereof client understands they are responsible for their debts and when client makes monthly deposit creditors will receive payments on client's behalf through the org client trust account org does not accept personal checks client understands and agrees to the following this is not a loan client is responsible for any funds dispersed on their behalf creditors may continue to charge interest there is a dollar_figurexx oo monthly administrative fee non-refundable org does not accept personal checks all questions concerning your account should be directed to org form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx attn customer service xxxxx blvd suite xox city state xxxxx xxx xxx-xxxx all processing and payment dispersal is handled at this address it is our policy to mail or fax proposals upon receipt of the file however we will not contact the creditor by phone until client had made the first payment client authorizes org to obtain and receive any information regarding client account client authorizes creditors to send any additional information needed to org this release agreement for information on my account may be copied and the copy may be deemed to be equivalent to the original and may be used as a duplicate original your total monthly payment terms are as follows month payment of and the_every month thereafter the automatic withdrawal of funds stated that the client agreed that org will withdraw funds from the client's bank account due on hardship program org claimed that it has a hardship program for clients who cannot pay any monthly administrative fees they are still in the dmp program org had xxx clients who did not pay any administrative fee the fee is waived as long as they are in the dmp program of the x xxx transferred clients from ur xxx of them did not pay any contribution fees according to the clients' data provided by org there were xxx clients who did not pay any monthly fees for at least one month the determination to waive the monthly fees is made by a supervisor or the president of org the qualification to determine the waived fees is based on the clients' applications and their budget org claimed that the initial enrollment fee is voluntary and of its clients did not pay an up-front fee sample of clients' files during the course of examination xx clients' files were randomly selected for review a summary of the clients' files are as follows client id xxxxx from state this client was transferred from ur the client's file includes a letter dated november 20xx from ur to the client it notified the client that his account would be processed by org and asked him to sign the enclosed enrollment and authorization to transfer his information to org the enrollment agreement stated that the client's monthly administrative fee was dollar_figurexx oo and monthly payment was dollar_figurexxx oo due on the xxth every month the client signed the agreement on dec 20xx the file also includes the debt information proposals to creditors and account audit forms and notes client id xxxxx from state the client signed the enrollment agreement on nov 20xx the file includes the form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx enrollment agreement authorization agreement for automatic withdrawal of funds debt information proposals to creditors and account audit forms and notes the client's monthly administrative fee was dollar_figurexxx oo and monthly payment was dollar_figurexxx oo due on the xxth every month client id xxxxx from state the client signed the enrollment agreement on dec 20xx the file includes the enrollment agreement debt information proposals to creditors written request from the client and account audit form and note the client's monthly administrative fee was dollar_figurexx oo and monthly payment was dollar_figurexxx oo due on the xxth every month client id xxxxx from state the client signed the enrollment agreement on dec 20xx the file includes the enrollment agreement authorization agreement for automatic withdrawal of funds debt information and account audit forms and notes the client's monthly administrative fee was dollar_figurexx oo and monthly payment was dollar_figurexxx oo due on the xxth every month client id xxxxx from state the client signed the enrollment agreement on nov 20xx the file includes the enrollment agreement authorization agreement for automatic withdrawal of funds debt information proposal to a creditor and account audit forms and notes the client's monthly administrative fee was dollar_figurexx oo and monthly payment was dollar_figurexxx oo due on the xxth every month client id xxxx from state the client signed the enrollment agreement on nov 20xx the file includes the enrollment agreement authorization agreement for automatic withdrawal of funds debt information and a proposal status sheet the client's monthly administrative fee was dollar_figurexx oo and monthly payment was dollar_figurexxx oo due on the xxth every month the other six clients' files include similar information as listed above p program org received dollar_figurexbig_number credit counseling grant from bank of ur the org's mission statement stated in the application as following org's mission is to provide education to our community through one on one counseling sessions monthly educational workshops and material such as books computer disks and pamphlets our goal is to provide information and knowledge about debt credit finance and other financial information in addition we provide a credit counseling program for those who are in serious debt and who need our services org stated its purpose of funding request as follows minute educational segment on national tv as part of a program on ur a national spanish speaking channel form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx in addition there would be x ads during the one hour segment that would relate to tips for financial education such as budgets bankruptcy how to review your credit reports how to apply for a loan etc the total cost would be dollar_figurexx xdollar_figure for xx weeks the name of the show is anything goes which is the premise of the show that will feature many entertainment segments such as gossip interviews special interests etc we at org are providing our clients approximately xooo with an educational financial package that includes a cd rom and a booklet that covers topics such as applying for a loan household budgets managing credit card debt reviewing and understanding credit reports bankruptcy financial security etc in addition when our company receives calls from the community we also mail these booklets to them as well we expect to send out an additional xoo booklets during 20xx for all consumers that call into our organization and need information the cost of these booklets financial packages with the cd rom is dollar_figurexdollar_figure plus dollar_figurex x0 for postage the grand total for this budget will be dollar_figurexx ox0 this includes a total of x xoo packages including shipping charges the grant outcome states the following should org be awarded with a grant the first measure would be to implement the educational outreach program our goal is to reach the community and inform them of the services that are available to them setting up the television segments are important in order to reach the communities therefore after choosing the timeslots which we feel will reach the most consumers the segments will be aired the second step would be to order all the necessary materials to have them readily available to all consumers and clients as well org also realizes that if more communities are reached more consumers are inclined to attend seminars and receive information therefore expanding our venues and increasing the number of qualified staff members will also be required to meet the new demands a system has been developed to trace and track all new incoming calls a call center will be set up in order to attend all new calls from our educational outreach program the education department's manager will be responsible to measure the volume of all calls as well as the number of educational information requested and sent out org has one employee conducting this program according to the conversation with him there are currently xo clients in the program and he contacts them at a monthly basis according to the notes he recorded during his conversation with xx clients all of the xx clients were current or former dmp clients and the conversations with xx out of xx were related to the clients' dmp accounts he discussed the financial education booklet information with four clients and the notes were as follows contacted client to inform her i would be the new financial education representative discussed financial education goals guidelines also briefly covered the chapters in financial ed booklet and the materials in ed packet x xx covered topics in chapter reviewed q a at the end of both chpts discussed how to apply budgeting principles to her small_business xx the dmp accounts related discussion was as follows form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx has been sending in monthly payment on time however now being harassed by creditors when she calls org she has been put on hold payments are not being made problem accts ur visa ongoing problem has lasted x to x months x xx client still incurring problems w aspire acct will check this acct talked to wife we agreed to co-call creditor on this acct on xx call early xx has not received statements needed to send along with payment receiving creditor calls on two accts ur ur last payment received in may xx over x months ago x xx org's employees and qualifications org employees' job descriptions org employs x persons hereinafter referred to as employees x employees work as customer service representatives and x as a financial education representative the customer service representatives answer clients' phone calls most phone calls ask about late fees change payment_date and checking account status they also send proposals to creditors after org received the first payment from a client they open the mail separate the mail input the customer's payment into the system and then send the payment to the consultant for processing processing center when receiving a phone call from a potential client the customer service representative will go through the screening questionnaires and send the client's information to the processing center to process for enrollment the customer service representative tracks the number of calls on their computer system for the year under examination the financial education representative provided financial education to about xo clients which included xo clients who did not enroll into a dmp he called the clients on a monthly basis to ask if the clients needed any help he conducted research to find out information for the clients he utilized language translation software to translate information in spanish and sent it to clients most clients requested information about credit cards credit score car purchasing and budget all employees received dmp computer system training including the input of a client's information into the computer system reviewing accounts processing payments checking due dates verifying client's information calling creditors and adding notes to the system for each call advertisement org advertised its services through internet media and yellow pages in 20xx media org bought a video spot in city ur station at x spots with xo seconds for each spot between noon to x oo pm on tuesday and wednesday x spots of xo seconds for each spot between noon to x oo pm on thursday and friday org paid dollar_figurexx0 for each spot the-three commercials are in spanish and the contents of the commercials are as follows commercial form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx do you feel trapped about your debts are the payments too much that you feel like burning yourself are is the interest rate so high that the payments don't go down your debts probably do not let you sleep are your debts so much that you feel you are drowning stop there and call org and feel tranquility in your pocket instead of several payments just have one stop the high interest rate and pay your debts sooner call us pincite xoo xxx-xxxx commercial next i want to pay my debt this is for interest this is for insurance and this is for late payments and this for the principle just that amount for my debts yes just that amount for your debt i'm never going to finish paying my debts never never never don't worry with org you can reduce or eliminate the high interest on your credit cards with just one monthly payment remember your possibilities i'm here for my appointment i want to consolidate my debts yes sir take a seat ai of our knowledgeable consultants can will do a free credit analysis for you and by you making one monthly payment you will pay your debt off in less time and save thousands of dollars the dream of all people in debt is to stay debt free org is a company that has helped hundreds of hispanics reduce or eliminate high interest rates we are a company approved by the department of banks of and by the internal_revenue_service call us now pincite xoo xxx-xxxx commercial visa mastercard american express how am i going to do it debts are a frustration they separate families they give headaches stop those debts by calling org we can reduce high interest rates call today make your family happy debts are a headache call today call now and approach this offer it benefits you approach this offer there is nothing like it only one monthly payment much lower than what you are paying now i found the solution credit card debts the credit card debts department store debts and hospital debts you need to call today and rest we have the answers listen to me publications org advertised its program on el clasificado a spanish publication x issues a month with a size of of a page the advertisement was in spanish which was translated in english as follows do you feel ruined because of your debt we can help you org reduce or eliminate your interest rate eliminate your over the limit credit ate fees make only one monthly payment free yourself of debt avoid bankruptcy free consultation save thousands of dollars on interest payments license bonded member of aadmo form 886-a 1-199x page of department of the treasury-lntemal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx call now for analysis of debt org also advertised its program on the spanish yellow pages the advertisement is similar as above internet org advertised its program at www org org the website provides both spanish and english versions the website includes x tabs on the top and x tabs listed on the side the tabs listed on the top are as follows home consumer information about debt relief sample savings debt calculator types of debt questions answers the tabs listed on the side are as follows our privacy pledge the legal side education credit reports debt statistics thinking of bankruptcy the best solution financial package under the tab of home it is a welcome page and it also links to its dmp program the welcome page states as follows now there is debt management relief through org this debt management program has helped tens of thousands of people nationwide consolidate millions of dollars in credit cards department store cards media bills finance companies other unsecured creditors into one low affordable monthly payment it doesn't matter how little you owe what matters is that our consumer debt management program lowers your monthly payments lowers your interest rates stops collection calls and could provide more spendable income each month for you and your family this consumer debt management program could reduce your monthly payments by xo to xo and pay off your credit card debt in xo to xo months instead of xo-xo years in addition this proven consumer debt management program in most cases can lower credit card interest rates between x to x and some creditors will eliminate interest form 886-a 1-199x page of32 department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx rates down to zero percent stop late fees over-limit fees andre-age past-due accounts to current over the past several years this consumer debt relief program has successfully consolidated millions of dollars in unsecured debt for thousands of people ur click here for consumer debt management program the dmp includes the following information credit counseling application it asks for the client's personal information employment information income and expenses information and credit card and unsecured debt information at the end of the application it summarized the total combined income total secured payment total household expenses payment summary of consolidation payment amount needed for creditors estimated maintenance fee payment total monthly payment to agency and disposable income dmp agreement same as the one listed under earlier section disclosure statements under the tab of consumer information the following information was provided focus on debt financial health the five tips may help to be financial health are set financial goals keep a budget economize when possible use credit with caution and maintain a good credit rating danger signs the five danger signs are paying bl1s late transferring balances from one account to another in order to obtain lower interest and payments depending on overtime at work to cover monthly bills hoping that checks you've written don't clear the bank before payday and borrowing from friends and relatives to cover basic living_expenses steps to living a debt free life the three steps are stated as follows the first step begins by sitting down and taking a realistic look at your lifestyle and the cost of maintaining it analyze your household budget if you're making minimum payments on your credit cards you have a problem the second step you must realize the problem and sincerely want to fix it filing bankruptcy chapter or is certainly a cure for this problem but should only be considered as a last resort for many people a consumer debt management program is the best solution and alternative to filing bankruptcy a consumer debt management program may be the only solution for those people that are unable to pay their credit card and other unsecured bills most credit card companies encourage people to seek help through a consumer debt management program like org the third step consolidating your credit cards and other unsecured debts into a consumer debt management program is easy and painless all personal and financial information is private and confidential between you and a certified credit counselor after creating a realistic livable household budget all of your credit cards and other unsecured debts will then be consolidated into one low affordable payment payments can be xo to xo lower than the combined payments you were making prior to consolidating your debts under the tab of about debt relief it introduced its dmp as follows form 886-a 1-199x page of32 department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx a fully implemented consumer debt management program can help a consumer in these following areas below consolidate unsecured debt lower monthly payments lower interest rates stop late over-limit fees re-age past-due accounts avoid collections avoid bankruptcy stop collection calls get rid of debt how the program works org is not a lending institution nor a collection agency it's a federally-approved non-profit debt management agency formed for the american people that offers a consumer debt management program this consumer debt management program will allow individuals and families to gather all their credit cards medical bills unsecured debts to be consolidated into one low affordable monthly payment once your bills are consolidated our objectives are to help you become stress free in xo days or less and help you become debt free in xo to xo months instead of xo-xo years we realize that many clients feel the financial stress from creditors that are calling day and night and have no plan to become debt free we are ready and here to help creditors nationwide approve and accept our consumer debt management program because it has been designed to help those individuals and families repay their debts while eliminating financial stress today tomorrow and well into the future under the tab of the legal side org provides answers for commonly asked questions about consumer's rights under the fair debt collection practices act there is no information under the tab of education under the tab of thinking of bankruptcy org states a dmp is a better alternative than filing for bankruptcy under the tab of the best solution org explains its dmp can help consumers to beef up his her credit score educational activities org stated its educational activities in response to the question asked by the service as follows form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx we held education seminars during 20xx and had a very poor showing most clients did not want to attend although they lived close we also tried to provide financial education at various locations but the response was dismal instead we decided to provide monthly educational newsletters many returned the newsletters with their payment still we sent them during 20xx the other program we developed was the p program we received a dollar_figurexdollar_figure grant from bank of ur on august of 20xx so that we could hire an employee and educate clients and the community org did not conduct any seminars since 20xx newsletter a sample of their newsletter was provided it was a one page newsletter including questions of what is debt load what is a debt-to-income ratio how do i calculate my debt-to-income ratio and answers for the three questions the newsletter had english and spanish versions there was no data showing how many clients received newsletters in 20xx and no newsletters were sent to its clients in 20xx p program in 20xx there were xo clients in the p program including xo clients that were not in a dmp and xo existing dmp clients org has one employee which conducted the dmp program the detail was listed above educational materials org provided to its clients a money management educational package including the following books understanding credit restoration and how to use it legally understanding how to consolidate and obtain federal and other student loans one is in english version and one is in spanish version understanding bankruptcy unpaid debts and debt collection understanding household budgets credit cards and electronic banking understanding deal and settle past due taxes with the irs the package also comes with a workbook and a cd there was no data that showed how many clients received the educational materials according to nn about xo of the dmp clients received the package website org did not have educational information via the internet financial information on form_990 and its filing org filed their form_990 for its fiscal_year ended december 20xx the following financial information was reported on the form_990 form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx financial information on form_990 and its filing org filed their form_990 for its fiscal_year ended december 20xx the following financial information was reported on the form_990 revenue direct public support program service revenue interest on savings net gain from sales of assets other revenue total revenue expenses compensation of officers other salaries and wages other employee benefit payroll_taxes accounting fees legal fees telephone postage and shipping occupancy equipment rental printing and publications travel conferences conventions interest depreciation others total expenses net_income december 20xx dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure org stated its program service as to provide debt management service and to educate community about credit and finance according to its financial records the revenue and expenses were allocated as follows form 886-a 1-199x page of department of the treasury-internal revenue service ---------------------- - --- form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit revenue fair share payments debt management fees grant received from bank of ur net gain from sales its dmp interest total revenue expenses compensation of officers other salaries and wages payroll_taxes accounting fees legal fees telephone postaqe and shippinq occupancy equipment rental printing and publications travel conferences conventions interest depreciation advertising bank charqes contract labor dues and subscriptions education expense insurance license permit maintenance miscellaneous office parking repair utilities website total expenses tax identification_number year period ended ein 20xx december 20xx of total dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure applicable legal principles form_886 a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx sec_501 a 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 c -1 d in other words the two components of education are public education and individual training sec_1 c -1 a of the regulations provides that in order to be exempt as an organization described in sec_501 c an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt 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 primarily in activities that accomplish one or more of such exempt purposes specified in sec_501 c an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose 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 useful and beneficial subjects treas reg g c -1 d in 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 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 an organization must establish that it serves a public rather than a private interest and that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1 c -1 d ii prohibited private interests include those of form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx unrelated third parties as well as insiders christian stewardship assistance inc v commissioner t c 92_tc_1053 private benefits include an advantage profit fruit privilege gain or interest 78_tc_280 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 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 creditors and set up debt repayment plans it did not restrict its services to the needy 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 c b 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 by virtue of aiding low income people without charge as well as providing education to the public the organization qualified for sec_501 c status 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 c it fulfilled charitable purposes by form 886-a 1-199x page of32 department of the treasury-internal revenue service r - - - - - - - - - - - - - - - - - - - - - - - - form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx educating the public on subjects useful to the individual and beneficial to the community sec_1 c -1 d i b for this it charged no fee the court found that the counseling programs 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 the court also 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 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 c b free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 c b 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 sec_501 c specifies that an exempt_organization described therein is one in which no part of the net of earnings inures to the benefit of any private_shareholder_or_individual the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1 a -1 c the inurement prohibition provision is designed to prevent the siphoning of charitable receipts to insiders of the charity 165_f3d_1173 7th cir reasonable_compensation does not constitute inurement 276_f2d_476 5th cir where an organization provided a source of credit to companies of which a private shareholder was either an employee or an owner the court found that a portion of the organization's net_earnings inured to the benefit of that private shareholder easter house v united_states cl_ct that such loans were made showed that the companies controlled by the private shareholder had a source of loan credit in the organization form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx in revrul_98_15 the service ruled that an important factor in evaluating joint ventures between exempt_organizations and for-profit entities is the degree of control retained by the exempt entity in operating the joint_venture sec_501 c of the internal_revenue_code prohibits an organization from participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public_office internal_revenue_service sec_501 specifies that an exempt_organization described therein is one in which no part of the net of earnings inures to the benefit of any private_shareholder_or_individual the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_a_-1 the inurement prohibition provision is designed to prevent the siphoning of charitable receipts to insiders of the charity 165_f3d_1173 7th cir reasonable_compensation does not constitute inurement 276_f2d_476 5th cir organization's position org did not agree to the government's position the following is a summary of org's positions as stated in the letter date may 20xx org applied for an exemption from tax in 20xx the company listed in detail its proposed tax exempt purposes and activities in the application_for recognition of exemption on form_1023 the irs granted the tax exemption based on the proposed activities org actively educated and assisted low-income persons in resolving their debt problems in 20xx the company operated exclusively for these charitable and educational_purposes org did not undertake any non-charitable activities during the years in question or any activities that were not described in the exemption application since the irs is proposing to revoke org's tax-exempt for the 20xx the tax laws in effect in 20xx must be considered the law was clear at that time that a credit_counseling_organization could provide debt management services and creditor intercession programs as part of its non profit and credit_counseling_services org met the factors considered by the irs in cca these factors include a public support and public control b charitable_class and below-costs services c earnings_of the organization d manner in which business is conducted org spent most of its time and efforts during 20xx and 20xx on educational activities and credit counseling form 886-a 1-199x page of department of the treasury-internal revenue service ---- ----- ----- form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx under the current tax laws an organization that provides credit_counseling_services as part of its exempt functions must comply with sec_501 of the internal_revenue_code the irs cannot apply these rules to org retroactively to 20xx under the transition rule credit counseling and debt management organizations that were in existence on august 20xx will be subject_to these requirements only for tax years beginning after august 20xx org is actively working to meet the requirement for the 20xx tax_year refer to org's letter dated may 20xx for details governments position the service contends that org has not operated exclusively for exempt purposes as described within sec_501 c in addition org was operated for the purpose of serving a private benefit rather than public interests both of these reasons are grounds for revoking the sec_501 exempt status of org org stated that it is organized exclusively for charitable religious educational and scientific purposes org stated that it spent xo of its time and resources to solicit customers to enter the dmp xo of its time and resources to educate the community about credit and xo of its time to process contracts by writing proposal letters to the creditors org further stated that the organization is not organized for the private gain of any individuals on the contrary the primary activities engaged in by org during the year 20xx was the sale and purchase dmp accounts and to provide customer services to its dmp accounts org sold some of its dmp accounts the accounts that ur can service tour a for-profit corporation it also purchased some dmp accounts accounts that ur cannot service because it is not a non-profit organization from ur and contract ur a for-profit corporation referred by ur to do processing for its dmp accounts org purchased more than x ooo clients from ur ur cannot service these accounts because it is not a non-profit organization at the same time org contracted ur referred by ur to process all its dmp accounts org paid dollar_figurex0 per month for each account enrolled in dmp org operated as a customer service_center of dmp accounts org has x employees including x employees working as customer service representatives org stated that it sent newsletters to its dmp clients and conducted community educational seminars but had a very poor response there was no record to show the number of clients who received the newsletter they did not conduct any seminars in 20xx and no newsletters were sent out in 20xx org received a dollar_figurexbig_number grant from bank of ur to conduct the p program org stated that it requested the grant to advertise its credit_counseling_services on tv to reach more consumers and they also planned to provide educational material to the consumers on the contrary org's advertisements on tv were for its dmp org also claimed that they provided to their dmp clients a money management educational package but there was no data that showed how many clients received the educational materials a review of its clients' files showed that there were no records that form 886-a 1-199x page of department of the treasury-internal revenue service ------------- ---------- form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx the clients received credit_counseling_services or received any educational materials there were no records that org conducted any educational follow up with the clients from the clients' files upon reviewing org's expenses for 20xx it spent x xx of its total expenses on educational activity org advertised its dmp program through media and publications there is no advertisement mentioned that org provided educational_services to the communities org received about xx of its revenues from fair share payments and dmp fees xx from the sales of its dmp accounts and xx from bank of ur for its p program selling and purchasing dmp accounts are not a tax exempt activity operating as a customer service call center for its dmp clients is not a tax exempt activity these substantial activities org conducted were not for exempt purposes org operated for the benefit of for-profit entities ur and ur by purchasing the clients that ur cannot service and contracting ur to do processing of its dmp accounts org's existence is to benefit the for profit entities by using its tax exempt status to operate as a nonprofit and therefore can receive fair share contributions while ur or ur can't org did not provide any education to the communities and provided limited education to less than xx of its dmp clients therefore the lack of the educational aspect will result in the loss of the tax exempt status therefore org was not operated exclusively for exempt purposes because more than an insubstantial part of org's activities are in furtherance of a non-exempt purpose in addition org was operated for the purpose of serving a private benefit rather than public interest by generating income to other for-profit entities accordingly the service determines that org does not qualify for exemption from federal_income_tax under sec_501 c effective jan 20xx org is liable to file corporate_income_tax return form_1120 for year 20xx and years after on page your letter dated may 20xx you stated and hereby quoted org actively educated and assisted low-income persons in resolving their debt problem in 20xx the company operated exclusively for these charitable and educational_purposes org did not undertake any non-charitable activities during the years in questions or any activities that were not described in the exemption application the government's position you have raised the argument that you satisfy the requirements of sec_501 because you serve a charitable purpose of relief of the financially distressed while there are circumstances in which the service has recognized relief of the distressed without regard to financial condition as a charitable purpose these situations are narrowly defined org has not established that it serves such a charitable purpose a credit_counseling_organization that limits its debt_management_plan_services to low-income individuals with financial problems is serving a recognized charitable_class see revrul_69_441 treas reg dollar_figure1 c -1 d charitable includes relief of the poor and distressed a credit_counseling_organization is not charitable if the recipients of its services are not a recognized form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx charitable_class see revrul_65_299 individuals with financial problems are not a charitable_class cf consumer credit_counseling_services of alabama inc v united_states a f t r 2d ria d d c no finding that providing debt_management_plan_services to individuals with financial problems relieved the poor and distressed see also 71_tc_202 92_tc_1053 victims of terrorism tax relief act of2001 p l sec_104 january payments must serve a charitable_class in exceptional circumstances a class of recipients may be charitable solely on the basis that they are distressed without regard -to their current financial condition see victims of terrorism act congress adopted special rule because of extraordinary distress caused by the attacks revrul_72_124 unique forms of 'distress' to which the aged as a class are highly susceptible revrul_79_17 alleviating the distress pain and physical difficulties generally experienced by dying persons revrul_79_18 major forms of distress to which the elderly of susceptible revrul_79_19 physically handicapped as a class are subject_to 'distress and may have greater need for financial security congress and the service have recognized that organizations which limit their services to such a class of distressed individuals may qualify for exemption when they also protect these individuals from becoming poor or destitute in the future see revrul_72_124 organization maintained residents who subsequently became unable to pay revrul_79_18 same revrul_79_19 same victims of terrorism act assistance for rent or mortgage on principal_residence was appropriate to forestall losses of a home that would cause additional trauma to families already suffering also congress generally has recognized the special needs of these charitable classes through the enactment of specific_legislation see eg the older americans act of americans with disabilities act victims of terrorism act no case ruling or statute specifically has recognized members of the general_public with financial problems as a charitable_class c f revrul_69_441 individuals with financial problems are not proper recipients of charity in such exceptional circumstances as described above an organization must establish that it operates for the purpose of relief of a charitable_class org has not established that it does so first org has not made any objective determination that the recipients of its debt_management_plan_services qualify as members of a charitable_class see revrul_69_441 plans limited to proper recipients of charity aid to artisans t c pincite program limited to those communities which have been objectively determined to be disadvantaged american campaign academy t c pincite beneficiaries must possess charitable characteristics victims of terrorism act general explanation pincite under existing law must make specific assessment of charitable need revrul_72_124 limited to persons at least revrul_79_17 physician determination that terminally ill revrul_79_18 limited to persons at least revrul_79_19 required to demonstrate need for specially designed facilities org made no such objective determination in fact org offered dmps to anyone who responded to its advertisements the only determination org made is whether the client meets the following requirements client must owe at least dollar_figurex ooo in unsecured debt client must be making the minimum payment to his her original creditors for months client must be in such dire need to enroll that he has no other alternatives client must have had credits for the last months form 886-a 1-199x page of department of the treasury-internal revenue service r - - - - - - - - - - - - - - - - - - - - - form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx the class of persons who meet the above requirements for a dmp may include persons who only have many small debts persons with high income levels etc based on the review of the dmp client folders that org provided there was no evidence that these individuals were low-income individuals there was no evidence that org obtained income verification to determine that the dmp clients were low-income individuals there is no objective assessment made of the potential client's financial distress by org second the organization's services must be specifically designed to relieve the recipient's distress see revrul_69_441 debt management plans for low-income with financial difficulties established only when necessary revrul_72_124 services specially designed to satisfy the elderly's primary physical emotional and other special needs associated with later years of life revrul_79_17 specialized services for lessening the distress pain and physical difficulties of dying persons revrul_79_18 designed constructed and equipped to meet the special needs of its elderly residents revrul_79_19 specially designed housing to enable the handicapped to achieve a greater degree of living independence and mobility and to make daily living easier org's debt_management_plan_services are not specifically designed to relieve a debtor's distress org did not tailor its program to relieve the financial distress of an individual client instead it offered a one size fits all dmp if the potential client meets the creditor requirements for dmps service is offered if not there is no service this is evidenced by the fact that org's customer service personnel not professional counselors asked all the people who call org regardless of their situations needs and circumstances the same pre-determined questions listed on the screening questionnaire finally the organization's programs must benefit the members of that charitable_class in a nonselective manner see american campaign academy t c pincite aid to artisans t c pincite treas reg c -1 d ii must serve public rather than private interests a credit_counseling_organization that only enrolls individuals in debt management plans who meet criteria established by a private party eg credit card companies is not treating all charitable_class members ie financially distressed individuals in a neutral manner instead the private party's criteria may have the effect of limiting the organization's services to the most able eg those with jobs or marketable skills and the least distressed ie those with sufficient income or assets to repay much of their debt in that circumstance the credit_counseling_organization impermissibly would be benefiting private interests by applying the creditors' selective criteria to limit services to more financially able individuals instead of treating all members of the charitable_class financially distressed individuals in a nonselective manner on page of your letter dated may 20xx you stated and hereby quoted law in effect in 20xx since the irs is proposing to revoke org's tax-exempt status for 20xx the laws in effect in 20xx must be considered the law was clear at that time that a credit_counseling_organization could provide debt management services and creditor intercession program as part of its non-profit and credit_counseling_services in consumer credit counseling of alabama v united_states aftr 2d the irs attempted to deny tax-exempt status to consumer credit counseling because the organization provide debt management services as part of its exempt functions the court rejected the position of the irs the court determined that the debt management and creditor form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx intercession activities were an integral part of the organization's counseling functions and were thus charitable and educational in nature the result was similar in credit counseling of oklahoma inc v united_states ustc d d c in that case the irs again revoked the tax-exempt status of a credit counseling and debt management organization because its tax-exempt functions were not limited to credit counseling and education the court granted the plaintiff relief from declaratory_judgment and determined that the plaintiff was a tax-exempt_organization under sec_501 c of the internal_revenue_code it ordered the irs to restore the tax-exempt status to the credit counseling company the government's position org was not operated exclusively for exempt purposes as described in sec_501 c for the following reasons a the primary activities that org engaged in 20xx were selling and buying dmp clients -this included the selling and buying dmp clients to and from ur processing corporation soliciting clients into dmp and servicing dmp clients - org employed three employees during 20xx two of the three employees were customer services personnel whose duties and responsibilities included screening prospects for dmp and handling dmp clients' questions org conducted no educational seminars and workshops in 20xx org claimed that it sent monthly educational newsletter to clients in 20xx however there was no record of the number of clients who received the newsletters no newsletters were sent in 20xx based on a review of the clients' file there was no evidence that org contacted the clients to follow up on the newsletter that was sent to them ie if the clients needed further explanation on any topics covered in the newsletter if any issues covered in the newsletter is a concern to the clients etc simply sending out a monthly newsletter to dmp clients without any follow up on them was not by any mean educational in 20xx org received grant of dollar_figurexbig_number from bank of ur to run advertisements educating dmp clients and the public however the contents of the ads primarily promote dmp commercial do you feel trapped about your debts are the payments too much that you feel like burning yourself are is the interest rate so high that the payments don't go down your debts probably do not let you sleep are your debts so much that you feel you are drowning stop there and call org and feel tranquility in your pocket instead of several payments just have one stop the high interest rate and pay your debts sooner call us pincite xoo xxx-xxxx commercial next i want to pay my debt this is for interest this is for insurance and this is for late payments and this for the principle just that amount for my debts yes just that amount for your debt i'm never form 886-a 1-199x page of department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx going to finish paying my debts never never never don't worry with org you can reduce or eliminate the high interest on your credit cards with just one monthly payment remember your possibilities i'm here for my appointment i want to consolidate my debts yes sir take a seat all of our knowledgeable consultants can will do a free credit analysis for you and by you making one monthly payment you will pay your debt off in less time and save thousands of dollars the dream of all people in debt is to stay debt free org is a company that has helped hundreds of hispanics reduce or eliminate high interest rates we are a company approved by the department of banks of and by the internal_revenue_service call us now pincite xxx-xxxx commercial visa mastercard american express how am i going to do it debts are a frustration they separate families they give headaches stop those debts by calling org we can reduce high interest rates call today make your family happy debts are a headache call today call now and approach this offer it benefits you approach this offer there is nothing like it only one monthly payment much lower than what you are paying now i found the solution credit card debts the credit card debts department store debts and hospital debts you need to call today and rest we have the answers listen to me b the facts of this case are substantially different than those of the consumer credit counseling of alabama v united_states and credit counseling of oklahoma inc v united_states in consumer credit counseling of alabama and credit counseling of oklahoma inc only xx percent of the time of the professional counselors was applied to dmp the remaining balance of these organizations' time and effort applied by providing educational information to the general_public counseling on the budgeting and the appropriate use of consumer credit and general management unlike consumer credit counseling of alabama and credit counseling of oklahoma inc org's principal activity was soliciting clients into dmp and servicing dmp clients org expended approximately percent of time to soliciting customers to enter into dmp percent of time to writing proposals to creditors and processing dmp contracts percent of time to servicing dmp clients to ensure that they are receiving the benefits and that they continue in the program in aggregate org spend sec_90 percent on its dmp and dmp related activities since org's primary activity was operating dmp it was not operated exclusively for exempt purposes as described in sec_501 c offering dmp for a fee is neither educational nor charitable but as a commercial activity on page of your letter dated may 20xx you stated and hereby quoted in our case org was separate and independent from other organizations none of the officers or directors of org were involved in any organization or corporation that benefited directly or indirectly from the activities of org org was established to assist low-income wages earners and to educate the community regarding debt management it was not established to subsidize related for profit organizations form 886-a 1-199x page of32 department of the treasury-internal revenue service - - - - - - - - - - - - - - - - - - - - - - - - - form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx the government's position while org was not operated for the benefits of its officers and directors org was operated for the private benefits of the credit card companies by offering and soliciting debtors into dmp org facilitated and allowed for the repayments of debts to credit card companies that they otherwise might not be able to collect and in return org received fair share contributions from the credit card companies for the services it performed d charitable_class and below-costs services on page of your letter dated may 20xx you stated and hereby quoted charitable_class and below-costs services the second factor that the irs stated was important in its 20xx chief_counsel opinion was whether an organization serves an exclusively charitable_class and offers some of its services free or below cost in our case org offered benefits only to low-cost wage earners and others in serious financial trouble who needed education and counseling in debt management and financial matters there were x xxo clients transferred from ur xx of whom did not pay any contribution fees there were xxx clients in 20xx and 20xx who did not pay any monthly fees for at least one month the government's position the government maintains that while the dmp clients that org was serving might have difficulties meeting their credit card debt obligations these dmp clients were not necessarily low-income individual making them a recognized charitable_class based on the review of the dmp client folders that org provided there was no evidence that these individuals were low-income individuals there was no evidence that org obtained income verification to determine that the dmp clients were low income individuals while org had waived monthly service fees for at least one month for some of its clients waiving one month service fee does not consider below cost services or free services since org does not permanently waive the fees for those clients a credit_counseling_organization that limits its debt_management_plan_services to low-income individuals with financial problems is serving a recognized charitable_class see revrul_69_441 sec_1_501_c_3_-1 charitable includes relief of the poor and distressed a credit_counseling_organization is not charitable if the recipients of its services are not a recognized charitable_class revrul_65_299 individuals with financial problems are not a charitable_class cf consumer credit_counseling_services of alabama inc v united_states a f t r 2d ria d d c no finding that providing debt_management_plan_services to individuals with financial problems relieved the poor and distressed see also 71_tc_202 92_tc_1053 victims of terrorism tax relief act of2001 p l 107-13x section 10x date payments must serve a charitable_class in exceptional circumstances a class of recipients may be charitable solely on the basis that they are distressed without regard to their current financial condition see victims of terrorism act congress form 886-a 1-199x page of32 department of the treasury-internal revenue service form 886-a rev january 199x name of organizationftaxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx adopted special rule because of extraordinary distress caused by the attacks revrul_72_124 unique forms of 'distress' to which the aged as a class are highly susceptible revrul_79_17 alleviating the distress pain and physical difficulties generally experienced by dying persons revrul_79_18 major forms of distress to which the elderly of susceptible revrul_79_19 physically handicapped as a class are subject_to 'distress and may have greater need for financial security congress and the service have recognized that organizations which limit their services to such a class of distressed individuals may qualify for exemption when they also protect these individuals from becoming poor or destitute in the future see revrul_72_124 organization maintained residents who subsequently became unable to pay revrul_79_18 same revrul_79_19 same victims of terrorism act assistance for rent or mortgage on principal_residence was appropriate to forestall losses of a home that would cause additional trauma to families already suffering also congress generally has recognized the special needs of these charitable classes through the enactment of specific_legislation see eg the older americans act of americans with disabilities act victims of terrorism act no case ruling or statute specifically has recognized members of the general_public with financial problems as a charitable_class c f revrul_69_441 individuals with financial problems are not proper recipients of charity in such exceptional circumstances as described above an organization must establish that it operates for the purpose of relief of a charitable_class org has not established that it does so first org has not made any objective determination that the recipients of its debt_management_plan_services qualify as members of a charitable_class see revrul_69_441 plans limited to proper recipients of charity aid to artisans t c pincite program limited to those communities which have been objectively determined to be disadvantaged american campaign academy t c pincite beneficiaries must possess charitable characteristics victims of terrorism act general explanation pincite under existing law must make specific assessment of charitable need revrul_72_124 limited to persons at least revrul_79_17 physician determination that terminally ill revrul_79_18 limited to persons at least revrul_79_19 required to demonstrate need for specially designed facilities org makes no such objective determination in fact it offers dmps to anyone who responds to its advertisements the only determination org makes is whether the client fits within the strict requirements made by the creditors to enroll in a dmp the class of persons who meet requirements for a dmp may include persons who only have many small debts persons with high income levels persons who are able to make payments without financial difficulty etc there is no objective assessment made of the potential client's financial distress by org second the organization's services must be specifically designed to relieve the recipient's distress see revrul_69_441 debt management plans for low-income with financial difficulties established only when necessary revrul_72_124 services specially designed to satisfy the elderly's primary physical emotional and other special needs associated with later years of life revrul_79_17 specialized services for lessening the distress pain and physical difficulties of dying persons revrul_79_18 designed constructed and equipped to meet the special needs of its elderly residents revrul_79_19 specially designed housing to enable the handicapped to achieve a greater degree of living independence and mobility and to make daily living easier org's debt_management_plan_services are not specifically designed to relieve a debtor's distress form 886-a 1-199x page of32 department of the treasury-internal revenue service ------------------------- - form 886-a rev january 199x name of organization taxpayer org explanation of items schedule number or exhibit tax identification_number year period ended ein 20xx org does not tailor its program to relieve the financial distress of an individual client instead it offers a one size fits all dmp if the potential client meets the creditor requirements for dmps service is offered if not there is no service this is evidenced by the fact that org's customer service personnel not professional counselors ask all the people who call org regardless of their situations needs and circumstances the same pre-determined questions listed on the screening questionnaire finally the organization's programs must benefit the members of that charitable_class in a nonselect manner see american campaign academy t c pincite aid to artisans t c pincite treas reg c -1 d ii must serve public rather than private interests a credit_counseling_organization that only enrolls individuals in debt management plans who meet criteria established by a private party eg credit card companies is not treating all charitable_class members ie financially distressed individuals in a neutral manner instead the private party's criteria may have the effect of limiting the organization's services to the most able eg those with jobs or marketable skills and the least distressed ie those with sufficient income or assets to repay much of their debt in that circumstance the credit_counseling_organization impermissibly would be benefiting private interests by applying the creditors' selective criteria to limit services to more financially able individuals instead of treating all members of the charitable_class financially distressed individuals in a nonselective manner therefore org was not operated to serve a charitable_class conclusion since org corporation org was not operated exclusively for exempt purposes as described within sec_501 its federal tax exempt status under sec_501 c should be revoked effective january 20xx org is responsible for filing form_1120 us corporation income_tax return for the tax years ended december 20xx and all years after form 886-a 1-199x page of32 department of the treasury-internal revenue service