Nonprofit Liable for Underpayment Interest from Date Exempt Status Revoked (Creditguard of America, Inc., TC)

The retroactive revocation of a nonprofit credit counseling corporation’s exempt status restored the corporation to the position it would have been in if it had never had exempt status. Therefore, the taxpayer was liable for interest beginning on the date its corporate return would have been due for the tax year at issue.


After the corporation’s exempt status was revoked, it agreed to the assessment of a deficiency and underpayment interest “as provided by law.” Accordingly, the IRS accrued and assessed interest from the date the corporation’s Form 1120 would have been due. When the amount remained unpaid, the IRS began collection and the corporation requested a Collection Due Process (CDP) hearing. At the CDP hearing, the taxpayer disputed its underlying liability. The corporation argued that interest could not accrue before the IRS revoked its exempt status.

Exempt Status Revoked

Although the corporation was tax-exempt and filed a form 990, it was still required to file a Form 1120 once its exempt status was retroactively revoked. Essentially, the taxpayer was not, in fact, tax exempt during that year. Rather, it was a corporation subject to regular corporate income tax. And, since the taxpayer did not actually pay tax on the due date, it was liable for interest beginning on that date.

Abuse of Discretion

Further, the IRS settlement officer (SO) did not abuse his discretion in sustaining the proposed collection action. The SO properly verified that all the applicable requirements had been met. In addition, he taxpayer did not dispute the SO’s rejection of the proposed collection alternative. Therefore, those issues were conceded.

Creditguard of America, Inc., 149 TC —, No. 17, Dec. 61,040

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All stories by: CCHTaxGroup