The Internal Revenue Service announced today that it would revoke the tax exemptions of 41 nonprofit organizations that counsel people who have amassed big credit-card debts, including some student-loan borrowers. Together the organizations account for some $410-million of the $1-billion in revenue that credit-counseling institutions take in annually.

The move came after the tax agency conducted an audit of those groups. It said every single organization it examined did not deserve tax-exempt status, either because the organizations were not providing enough financial education to their clients, or because they paid too much money to their chief executives and channeled too many dollars to for-profit entities connected with the nonprofit organizations.

“Over a period of years, tax-exempt credit-counseling organizations became a big business dominated by bad actors,” Mark Everson, commissioner of the Internal Revenue Service, said in a statement that accompanied the agency’s report on its audits. “Our examinations substantiated that these organizations have not been operating for the public good and don’t deserve tax-exempt status. They have poisoned an entire sector of the charitable community.”

As a result of the widespread problems it found in its two-year investigation, the IRS said it would contact all of the 743 nonprofit credit-counseling groups that it had not investigated to make sure that each one was complying with the law. The revenue service said it also had become stricter about granting tax-exempt status to credit-counseling groups. It has approved just three of the 110 applications for tax-exempt status submitted by credit-counseling organizations since 2003, it said.

The tax agency also released written guidelines on how nonprofit credit counselors can comply with the law and retain their tax-exempt status.

(This article is courtesy of The Chronicle of Philanthropy.)