Washington (Sept. 21, 2004) -- In its aggressive crackdown on credit counseling abuse, the Internal Revenue Service filed a $15 million suit against Germantown, Md.-based AmeriDebt Inc. in anticipation that the company's tax-exempt status would be overturned.

The IRS is currently auditing roughly 50 credit counseling companies. The counseling concerns negotiate with credit card companies to lower their customers' interest rates and monthly payments. Recently, however, many of them have come under scrutiny by regulators for allegedly taking advantage of people in debt and channeling the processing fees to for-profit affiliates.

AmeriDebt Inc., which once boasted a customer base of nearly half a million, filed for Chapter 11 in June. According to published reports, the Federal Trade Commission and four state attorneys general have already sued the company, alleging that it misled consumers into making "voluntary contributions" that ended up in the pockets of founder Pamela Pukke and her husband, former AmeriDebt Inc. chief executive Andris Pukke.

Last week, a Bankruptcy Court examiner stated that AmeriDebt's 1999 transfer of assets to DebtWorks Inc., a for-profit company created by Andris Pukke, was potentially fraudulent and should be "vigorously pursued."

An attorney for Andris Pukke and DebtWorks Inc., said that DebtWorks had paid fair-market value for AmeriDebt's assets in 1999. DebtWorks reportedly deducted $425,000 in processing fees that it received for handling AmeriDebt's customer accounts instead of paying money upfront. The Washington Post reported that AmeriDebt paid more than $100 million in processing fees to DebtWorks.

-- WebCPA staff

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