If you work with a credit counseling agency, one of the reasons you selected them might be their nonprofit, tax-exempt status. And that’s good logic: In order to qualify as a charitable organization – often called a 501(c)(3), named after the section of the tax code that enables them – organizations have to be, well, charitable. Here’s how the IRS qualifies an organization as tax-exempt.
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.
In short, in order to qualify as a tax-exempt charitable organization, the organization must act in the best interests of the public, as opposed to the people running it. And if the IRS determines that’s not the case, they revoke its 501(c)(3) status and make it pay taxes like the rest of us.
The IRS keeps an eye on 501(c)(3) organizations and periodically publishes a list of those that are losing their tax-exempt status. If you’re donating to one, you certainly want to know if an organization is losing their charitable designation, because that means any donations you make will no longer be eligible for a tax deduction. And if you’re working with one – like a credit counseling organization – losing tax-exempt status is a definite red flag and something you’d want explained.
Here’s a list of organizations that have recently had their tax-exempt status revoked, from this page at the IRS website. Notice how many are credit counseling organizations.
If you’re working with any organization on this list as a donor, or in the case of a credit counseling organization, a client, you should be concerned. Call the organization and see what caused the IRS action.
The list above includes only recent revocations. There have been literally hundreds of organizations that have lost their tax-exempt status over the last few years. Here’s a cumulative list of revocations from January 2005 to now.