Bankruptcy Credit CounselingInsolvency Credit Advice
The Internal Revenue Service ("IRS") enacted a Private Letter Ruling of 201117036 ("PLR") on April 29, 2011, which denies a non-profit credit bureau ("CCA") exemption under Section 501(c)(3) of the Internal Revenue Code ("Code") on the grounds that its principal business would have been to provide a pre-bankruptcy certificate and post-bankruptcy advice for charges.
Although not the first piece to guide to adress the tax free status of credit counseling companies, this privately owned sign which addresses - the particular facts of an organisation - gives insights into the IRS' rapprochement regarding bankruptcy counseling and debt-training provider and could have a significant effect on a large number of credit counseling companies.
Impacts can be wider than just insolvency advice and borrower training and can lead to a rethink in advisory methodologies and relations with borrower training and financing resources across the sector. Following changes to the Bankruptcy Act under the Insolvency Abuse Prevention and Consumer Assistance Act 2005 ("BAPCPA"), the Act now stipulates, with a few exemptions, that persons intending to apply for bankruptcy relief must obtain a credit advice statement from a government-approved company within 180 workingdays before submission.
You will also need to attend a training course on debtors from an accredited supplier in order to get debt relief. The rules in force allow the provision of personal, on-line or telephonic service. In accordance with the CATCPA, the legally prescribed consultancy certificate does not require the tax-exempt exemption under § 501(c)(3) for budgetary or CCA approvals under the CATCPA prior to the submission of the consultancy, but the non-profit character of the consultancy (typically the establishment as a non-profit organization) is a requirement, among others.
In the case of early creditor training required by the CATCPA, training programmes for finance managers may be offered by either non-profit or for-profit enterprises. 501 (c)(3) exempt from German Government personal revenue taxes Corporation that is organised and run solely for charity, training or other causes, provided that no part of its net revenue is paid to a natural person or natural person or a natural person.
Furthermore, 501(q) of the Code states that a company providing credit advisory service is not covered by the waiver under 501(c)(3) unless it is organised and operates in accordance with the very particular needs of 501(q). Among these are that the company provides credit advisory service adapted to the particular needs and conditions of the consumer and that the company is organised and operates in accordance with a number of supplementary special needs.
IRS examines whether the organisation offers each borrower an option appropriate to their particular situation, rather than providing advice as a means of enrolling private persons in credit risk mitigation schemes without considering the best interest of the person. When assessing the organisation's objectives, the IRS takes into account issues such as the way the organisation promotes its service, conducts interviewing and advising customers, developing recommendation and training its consultants.
But so far what has been less clear is how the IRS would handle an organisation looking for a tax-free statute that was merely a supplier of bankruptcy counseling and borrower training programs forfeiture. This organisation, which aims at the acknowledgement of the ÖREB's fiscal exemptions, was founded for "charitable" reasons. The PRLR stated that the company was of the opinion that it would offer'[BAPCPA-]compliant pre-competition advice by phone interviews and on-line education/information gathering events.
The company was also to offer training for debtors, some of which could be delivered on-line with the help of a non-profit CCA that has created an on-line programme to meet the advisory needs of CATCPA. The company reported that the consulting period was between 5 and 2 working days, according to topic and customer.
Customers who needed help were given a number of ways to ask consultants for help. The company used a third course on-line for the Schuldnerlehrgang that took place before the dismissal. Any payments for these sevices should be made by the Company via its website or by postal order.
Third parties for on-line courses should then be remunerated as providers. Furthermore, through the use of company website hyperlinks, users should be able to use an on-line budgetary calculator; use a credit recovery set for a charge; and gain recourse to educational/self-help resource where they would find free printed brochures, spreadsheets and hyperlinks to Budgeting, Purchasing, Savings, Enforcement, Bankruptcy, etc.
While personal and phone advice would be available to those who do not have online recourse, the company expected that personal or phone advice would be minimum as their online advertising would be exclusively Internet-based. It also provided information indicating that its advisory meetings would not consider any other option for handling the client's liability other than bankruptcy petition.
IRS analysed the facts and found that the company is not eligible for relief as a company described in Code Section 501(c)(3) and that it must submit personal tax return (as a company liable to tax). On the basis of its conclusions, the IRS found that the company (1) had not passed both the organisational and business acceptance testing for tax-exempt status; that ( 2) had not introduced any training method; and (3) that its main objective was to resell certification for insolvency rather than inform and advise the general public. 3.
Thus, the IRS explained that the company was active for non-exempt business ends and omitted to find that its operations promote a tax-free end within the sense of Code Section 501(c)(3). It is noteworthy that the ÖREB ruling is remarkable because the IRS may have questioned the exemptions of non-profit insolvency counselling and debt training suppliers who do not participate in other useful training initiatives, in particular those using computer-based counselling and third-party training schemes.
Though bankruptcy trustees are allowed by the German federal Government to offer on-line counseling, this decision may have the effect of restricting these vendors to rateable non-profit entities and non-tax-exempt credit counseling firms, as they are unable to obtain external funding at a level adequate to meet the IRS. Any credit bureau that is affected by this latest IRS decision should consider the implications of this decision thoroughly in their own circumstances.