Non Profit Counseling

The Counsel published on April 20, 2010, a public notice of a note sent to the Technical and Assessment Bureau x of the exempted companies (the "Memorandum") outlining its views and legislative analyses with regard to the implementation of Code Section 501(q) to companies currently exempted from German federal income-tax and to those seeking to obtain exemption under Sections 501(c)(3) or (4), to perform or plan to perform operations that support property owners threatened with enforcement.

Although the Memorandum was released to give guidelines for the handling of requests and analysis of the activity of friendly companies under Code 501(c)(3) or 501(c)(4) and cannot be invoked as a mandatory precedent, it is important because it is the service's first released guide to Section 501(q). In particular, the Memorandum provides guidelines on the application of Section 501(q) to the compartmentalisation of residential advisory support service.

The memorandum also reaffirms the conviction that the Service will carefully examine requests from potentially exempted companies participating in foreclosures. Under the Pension Protection Act of 2006 (Public Law 109-280), Section 501(q) of the Code was introduced to impose supplementary conditions on loan officers who would otherwise be deemed exempted under Sections 501(c)(3) or (4).

Clause 501(q) is generally applied to all entities that are exempted from the provisions of clause 501(c)(3) or (4) that offer loan advisory service as a substantial part of their business. 501 (q)(4)(A) to understand (i) the provision of education information to the general population on housekeeping, individual finances, education, saving habits, expenditure habits and the wise use of loans to consumers, (ii) the provision of advice to support individual persons and households with economic difficulties, or (iii) a mix of the actions described in terms (i) and (ii).

Section 501(q)(2)(A)(ii) of the Code provides that the overall income received by a loan advisory organisation, as described in Section 501(c)(3), from a creditor providing service under a debit facility agreement may not more than a certain proportion of the overall income. Section 501(q), Section 501(q)(4)(B) define the concept of "debt planning services" to cover those related to the reimbursement, consolidating or reorganizing of a consumer's debts, and shall cover negotiating with lower interest rate lenders, waiving or reducing charges, and commercializing and servicing debit planning.

The Memorandum asks the attorney's bureau whether Code Section 501(q) is applicable to companies conducting or suggesting operations that support home owners threatened with enforcement, provided they offer the general community finance literacy and/or advice and otherwise comply with Sections 501(c)(3) or (4).

This memorandum sets out the activity of organisations offering counselling and education services to people at greater risk of home forfeiture. The memorandum states that these organisations support home owners threatened with foreclosure: 1 ) Educate these house owners about finance issues by holding seminaries, open debate groups, fora, panel, presentations or workshop or by otherwise distributing finance teaching materials to these house owners and/or 2) give finance advice to these house owners.

This Memorandum concluded that companies offering education information on finance issues or offering advice to home owners threatened with enforcement offer "credit advisory services" within the meanings of Code Section 501(q)(4)(A). Furthermore, in order to carry out an activity as an essential activity, an undertaking must also fulfil the supplementary requirement of Section 501(q) in relation to the requirement of Section 501(c)(3) or (4).

In the Memorandum, it also concluded that the supply of residential advice - comprising efforts to change interest rate, write off arrears and/or change the deadline for repayment of a mortgag - is not contrary to the ban in Code 501(q)(1)(1)(A)(ii) on granting credit to borrowers and negotiation of credit on them.

Upon achieving this inference, the service characterized such activity as eligible credit planning service, not as the negotiating of credit. In particular, the service's finding that certain residential advisory service providers are negotiating service "debt planning services" could lead to an important topic that is not directly dealt with in the memorandum. In particular, income from advice on accommodation may have to be considered as income resulting from payment by a creditor falling under the 50 % restriction of § 501(a)(2)(A)(ii).

The memorandum, while useful, does not include discussions on a number of taxation questions related to home advisory work. Apart from the issue of whether the income from home advisory service can be limited by 50% (as mentioned above), the memorandum does not address this issue: Application of the ban on "negotiating the granting of credit" to companies that help house owners re-finance their current home construction mortgages.

If an organisation supported a house owner in connection with HARP, would this lead to the ban on credit negotiations, as refinancing involves the granting of a new credit? Relevance of Code Section 501(q) and, where applicable (in the light of the Memorandum), the impact on companies providing directly or indirectly mortgages (other than advisory services) recognised by the US Department of Housing and Urban Development ('HUD').

In accordance with the Joint Tax Committee (JCT) legislation document, this section of the Code was adopted on the condition that it would not affect the capacity of 501(c)(3) undertakings to perform certain types of service authorised by HUD. Refer to Joint Committee on Taxation, Technical Declaration of H.R. 4, page 318, No. 432 (JCX-38-06) ("In general, the negotiations of a credit involve the negotiations of the conditions of a credit and not the handling of a credit.

For example, companies that help customers obtain a home loans from the Ministry of housing and urban development do not necessarily negotiate a home loans for a consumer."). Application of Code Section 501(q) to other types of HUD-approved residential advisory service, comprising pre-purchase and reverse mortgages advice. Finally, the Memorandum acknowledges two previous pre-section 501(q) Chief Counsel Advice Advice memorandums on lending firms.

General Counsel Counsel 200431023 (13 July 2004) and General Counsel Counsel 200620001 (9 May 2006). This memorandum - which provided in-depth assistance for the revocation of the exceptional nature of loan advisory organisations for several reasons - was a key element in the Service for Lending Advice's vigorous adherence exercise, which led to a very large number of recalls suggested.

This memorandum refers to the JCT Code Section 501(q) Reported, in which the JCT stated that "[Section] 501(q)'does not reduce the requirement stated in the two memos, but bases and agrees with those requirement, and the analytical work therein. It is interesting to note that the content of the two Chief Counsel Advice Notes and the extracts from the JCT Review do not appear to be in any way pertinent to the overall assessment of the Memorandum.

One copy of the Memorandum is available on the Services website at www.services.com,id=221530,00.html. More information en zu Code Section 501(q) finden Sie in unserem Artikel "New Taxlaw Establishes Additional Standards und Anforderungen for Credit Counseling Agencies", verfügbar unter http://www.venable.com/new-tax-law-establishes-additional-standards-and-requirements-for-credit-counseling-agencies-10-01-2006/.