Articles About Getting Clean Credit

Internal Revenue Service to Help Credit Counseling Agencies Understand the Provisions of H.R. 4

(PRWEB) October 6, 2006 -- The Internal Revenue Service will address the American Association of Debt Management Organizations’ (AADMO) Fall Conference in Las Vegas on October 24, 2006. The IRS will provide a review and explanation of the provisions of Section 1220 of H.R. 4 which is the major overhaul of the tax-exempt requirements applicable to credit counseling agencies.

“H.R. 4 is the most significant change in the law to impact the credit counseling industry in many years. This change is nationwide, affecting the entire industry. It makes the recent changes in state law pale by comparison. It will alter the way credit counseling agencies operate, whether they stay non-profit or become for-profit, how they receive assistance from creditors, how consumers pay for services, how they comply with state law and, most importantly the fact that they may now have to pay taxes”, said Mark Guimond, Executive Director of the AADMO.

“In addition to the IRS presentation, AADMO will also show the IRS’ in-house training program and video for credit counseling agency investigations. Credit counseling agencies will now be able to know the entire story – from compliance to planning. This is vital information for lawyers representing a 501(c)(3) credit counseling agency, anyone who operates a credit counseling agency and anyone who serves on the board of an agency”, added Guimond.

This internal training video was developed by the IRS in conjunction with the Attorneys General from various States and the FTC. This video, of several hours length, was broadcast within the IRS, shared with the States, and sent to Congressional staff.

Quotes from the video include:

"This is not an area of exempt organization law that requires a great deal of legal research. You won’t be staying up into the night reading treatises, legions of court cases and mountains of private letter rulings. We rely on two revenue rulings and two court cases."

"It is our hope that you, our front line troops, will be prepared to perform your pivotal role."

"…the negotiator, in large measure, works for the creditor…he facilitates the collection of the creditor’s accounts."

"There is no authority for viewing interest rate intercession, by itself, as furthering an exempt purpose."

H.R. 4 would prohibit 501(c)(3) and 501(c)(4) tax-exempt status for a credit counseling agency unless it:

• provides credit counseling tailored to the specific needs of individuals
• does not make loans or negotiate making loans
• does not provide or charge for credit repair
• does not refuse service for the inability to pay or enroll in a DMP

Further, the credit counseling agency:

• must charge reasonable fees
• waive fees if the consumer is unable to pay
• except as permitted by state law, not charge a fee based on a percentage of the debt or payment
• except as permitted by state law, not charge a fee based on a percentage of the amount of the payment savings (actual or projected)
• must not have a board without broad community representation and who are not employed nor may benefit from the agency’s activities (based on certain criteria)
• must not own more than 35 percent of “back-end” services
• must not pay for referrals or be paid for referrals
The language does include specific requirements solely for 501(c)(3) agencies. This includes:
• The organization cannot not solicit contributions from consumers during the initial counseling process or while the consumer is receiving services from the organization.
• The aggregate revenues of the organization which are from payments of creditors of consumers of the organization and which are attributable to debt management plan services do not exceed the applicable percentage of the total revenues of the organization. The amount is 50 percent.

There is a “ramp-down” mechanism for the aggregate revenue threshold of creditor contributions that goes into effect one year after the enactment of the law. That first year of the law when it is actually in effect provides that the threshold is 80 percent, 70 percent the next year, 60 percent the year after, then into the 50 percent level in perpetuity.

The legislation also declares “Debt Management Plan Services” to be unrelated business income. The term ‘debt management plan services’ means services related to the repayment, consolidation, or restructuring of a consumer’s debt, and includes the negotiation with creditors of lower interest rates, the waiver or reduction of fees, and the marketing and processing of debt management plans.

Other sessions at the AADMO Fall Conference will include:

• Executive Office for US Trustees - Bankruptcy Reform: Rules, Renewals and Reflection at the One Year Anniversary
• How to Become a HUD Approved Housing Counseling Agency
• The World After Tax-Exemption Revocation: Transition Options, Personal
Liability and Who Has to Pay the Taxes?
• Tax Exemption Update: IRS Guidance, New Legislation, But How Much Do We Really Know?
• State of the Industry and Legislative Update
• Complying with the Virginia Credit Counseling Law
• Complying with the Non-Profit Debt Management Services and Budget Planning Law of Maine - and the Prospect for Change
• The California Prorater Law: A Discussion of Its Current Status and the Legislative Future
• Knowing and Understanding the Changes to the Law of Iowa
• Panel Discussion of the IRS Training Video

The AADMO Fall Conference program and registration information can be found at www.AADMO.org or by calling 281-361-2325.

ABOUT AADMO
AADMO is the largest trade association for the credit counseling and debt management industry. Nationwide, the majority of licensed and legally operating credit counseling agencies are members of AADMO.

AADMO is an industry education and advocacy organization whose mission is to promote and ensure the continued operation and viability of credit counseling and debt management organizations. AADMO provides its members and the consumer public with information about the credit and debt counseling industry.

AADMO members are consumer credit counseling agencies, debt management organizations, credit counselors, personal finance educators, credit and debt information educators, consumer lawyers and many others.

AADMO is the only trade association to have held state law compliance workshops with the New York State Banking Department and the California Department of Corporations upon enactment of their respective laws governing credit counseling and AADMO is the only trade association for the industry to publish a formal summary of state laws that has been reviewed by state regulators.

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