The Scientology Organization's
Fight for Recognition as a Non-Profit Organization
in the USA
and its Effects in Germany
|In the story of the origins of Scientology, which arose in the United States
in the early 1950s, there are several mysterious aspects, which would certainly
include its tax exemption from the Internal Revenue Service (IRS), the USA's highest
tax authority. The IRS granted the "Scientology Organization" (SO) tax
exemption in 1957, but revoked it in 1967 on the following basis: "Scientology
practitioners are profiting from the 'non-profit' Church; The Church's activities
are commercial; The Church is serving the private interests of L. Ron Hubbard."
The SO denounced the revocation, and declared its intention to ignore the decision.
For the next 26 years the SO paid no taxes to the US revenue authorities.
When surveillance of the SO by the Germany Constitutional Protection authorities
began in January 1997, it was only known that according to a 1 October 1993 agreement
with the IRS, the "Church of Scientology" had been recognized as non-profit,
a result of which was that all the organizations under the SO had attained tax-exemption.
More specific details about what had led up to the agreement only became apparent
in subsequent years, through the Internet in particular.
Because tax exemption from the IRS had the result in the United States of acknowledgment
as a non-profit religious association, it is not at all surprising that Scientology
has consistently tried to exploit this circumstance for advertising purposes.
This is also the way it supported its demands in Germany and other European countries
for recognition as a non-profit religious organization and submitted this as evidence
in court proceedings, as ultimately happened in the Cologne Revenue Court.1
Despite the fact that the SO is not recognized in many European nations as a religious
community, it goes to great lengths to present itself to the world's public as
a religious minority which is persecuted and discriminated against, especially
in Germany. In doing this it has not been able to pass up the absurd and tasteless
comparison with the persecution of the Jews in the Nazi era. The propagandistic
intention of this tactic was obvious: by conjuring up a supposed possibility of
a revival of cynical state despotism on German soil, distrust and skepticism was
to be kindled in other nations, mainly the USA, against Germany, thereby hindering
or even preventing effective proceedings by German authorities against the SO.
Besides that, it was to give the impression, with reference to the special protection
for freedom of belief and conscience under Article 4 of Basic Law (BL), that any
state intervention against Scientology's practices were a blatant violation of
The question of whether the SO could actually be regarded as a religious or
worldview association was, by decision of the German Constitutional Protection
officials, not of primary importance in observing the organization.
1 In those hearings the Cologne Revenue Court decided 24 October
2002 that SO license fees were tax exempt in Germany in accordance with the double
taxation agreement with the USA - contrary to the SO presentation, this was not
evidence of recognition as either a non-profit or a religious community. See chapter
In accordance with the Constitutional Protection Laws of the land and its states,
the Constitutional Protection authorities serve to protect the highest values
of the Constitution, which are also described as liberal democratic basic laws.
Article 4 of Basic Law is part of these basic laws. Because, however, it is only
one of several elements of liberal democratic basic laws, and therefore depends
of their continued existence, the consequence arises that one cannot, or cannot
fully, invoke Article 4 to use the pretext of practice of religion or a related
religious activity to eliminate the highest principles of value in the Constitution.
Results of SO surveillance have shown that parts of Scientology's ideology are
incompatible with liberal democratic basic law.
In the United States, however, religious freedom is defined differently. Because
of its historical development, a strict separation of church and state exists
there. Anyone who can make a credible display of being a religion can claim the
corresponding constitutional protection. In addition, in 1981 the United States
Supreme Court decided that protection of religious freedom in the First Amendment
did not presume that the religious fundamentals had to be acceptable, logical,
sensible or comprehensible to others.
These contradictions permit the question to be raised of why the Office for
the Protection of the Constitution in Baden-Wuerttemberg is interested in the
circumstances of "Church of Scientology" tax exemption in the USA. Especially
noteworthy along these lines is the attempt by Scientology to exert influence
on government agencies. Besides that is the fact that the SO establishments in
Germany, in view of the global strategy, are in no way self-sufficient, but are
part of a hierarchical organization that is tightly controlled from the USA. Therefore
it seems appropriate to analyze the history of SO tax exemption in the United
States and the associated methods of operation by its management, because comparable
conduct cannot be ruled out in Germany. In an interview with the "St. Petersburg
Times" in October 1998, the leader of the SO, David MISCAVIGE, told of his
goal of attaining tax exemption or religious recognition, as the case may be,
for Scientology in the most important European countries.2 Certainly
the Federal Republic of Germany was included.
Unlike other legal agreements and the usual customs, the agreement between the IRS and the SO was kept secret, meaning it was regarded as a tax agreement with a private individual. Details were not
known until a copy of the agreement was put on display at the end of December 1997 in the Wall Street Journal, which published it on the Internet. While so far there is no sort of proof that the SO proceeded illegally with regard to the agreement, it was at least engaged in putting as much pressure as possible on the IRS.
None of the following points were contested by SO leadership, and several were
even publicized by David MISCAVIGE in his October 1993 speech on tax exemption:
- The IRS and its staff were sued by the SO for 128 million
- The SO filed a total of 2,5000 lawsuits against the
- The SO engaged private detectives to illuminate weak
spots in the private lives of IRS management.
- The SO "Freedom Magazine" published sensational
assertions about alleged IRS "crimes."
- The SO sent out press releases to the US press with
picture sub-texts like "Don't kill my daddy," and "How
do you spell IRS in Russian? Answer - KGB!".
In the 30 December 1997 Wall Street Journal front page article "Scientologists
and IRS settled for $12.5 million" it said:
"Further, the church agreed to drop thousands
of lawsuits filed against the IRS in courts around the country and to stop assisting
people or groups suing the agency based upon claims prior to Oct. 1, 1993, the
settlement date. (...)
The 1993 agreement was nearly unprecedented
and brought an end to an extraordinary battle. Starting in 1967, the IRS had argued
that the main Scientology church should lose its tax-exempt status because it
was a for-profit business that enriched church officials. The church's response
was an all-out attack: filing suits against the IRS, feeding negative stories
about the agency to news organizations, and supporting IRS whistle-blowers. (...)
The church's $12.5 million payment was intended
to cover the church's payroll, income and estate-tax bills for an undisclosed
number of years prior to 1993. It is unclear how much money the IRS originally
"The IRS normally settles on tax issues
alone," said Robert Fink, a New York tax lawyer who reviewed the agreement.
"What the IRS wanted was to buy peace from the Scientologists. You never
see the IRS wanting to buy peace."
For a better understanding of the SO fight for tax exemption, events are subsequently
presented in chronological sequence, beginning with 1950.
|2. The Creation of Scientology as Religion
|Until 1950, Lafayette Ronald HUBBARD, born 1911 in Tilden, Nebraska,
tried, with a certain degree of success, to make a name for himself as a science
fiction writer. It was not until "DIANETICS" and "Scientology,"
which he extolled as the results of his research work, that he gradually met up
with success, since HUBBARD was then able to recruit a steadily increasing following
for his teachings.
When L. Ron HUBBARD released his book, "DIANETICS: The Modern Science
of Mental Health" in 1950, he described his findings as the result of research
work in the area of the human mind. To further develop this "Science of the
Mind," HUBBARD published another book, "Scientology - The Fundamentals
of Thought" as the ideological superstructure of "DIANETICS." HUBBARD
saw himself as a bearer of salvation, and described his "science" as
the sole chance of ridding the world of all evil, like war, crime, illness and
poverty. When he founded the "Hubbard Association of Scientologists International"
(HASI) in 1952, there was not yet any discussion of this being a "church"
or of Scientology being an "applied religious philosophy." However,
HUBBARD soon saw the commercial advantage of stepping forward as a "church,"
since the status of religion would bring tax advantages with it. In April 1953,
he wrote a long letter to Helen O'Brien, the director of the HASI establishment
in Philadelphia, in which he discussed his considerations of converting Scientology
into a religion. "I await your reaction on the religion angle,"
he wrote, and continued, "In my opinion, we couldn't get worse public
opinion than we have had or have less customers with what we've got to sell. A
religious charter would be necessary in Pennsylvania or NJ 5 to make
it stick. But I'm sure I could make it stick."6
In December 1953, HUBBARD founded three "churches in Camden, New Jersey:"
the "Church of American Science," the Church of Scientology" and
the "Church of Spiritual Engineering." The signers of the founding charters
were HUBBARD, his third wife, Mary Sue, along with daughter Henrietta. On 18 February
1954, the "Church of Scientology of California" was founded.
Its message included assuming the goal, the purpose and the creed of the Church
of American Science, as it was founded by L. Ron Hubbard." Another "Church
of Scientology" was founded in Washington, D.C., and in 1954 HUBBARD urged
that the organizations of Scientology should be converted into independent "churches"
all over the United States. The directors of HASI establishments should, in the
future, describe themselves as clergy, and to get this impression across better,
wear church garb and add the title "Reverend" to their names.7
5 New Jersey.
(Gerry Armstrong, Declaration of 22 July 1982).
- The Corruption of Scientology by Chris Owen.
- A Piece of Blue Sky by Jon Atack.
In the late 1950s, HUBBARD was living without any financial worries, the membership
numbers of Scientology were steadily rising, as was its income. In 1957 the IRS
exempted Scientology from reporting for taxes on the basis that Scientology was
a business exclusively devoted to "religious and educational purposes
and its income did not in any way profit an individual." However, the
revenue office was not aware that HUBBARD and his family were living in grand
style from the "church's" income. From the establishment of the "Founding
Church" in 1954 to March 1957, HUBBARD received an annual salary of 6,500
dollars. In 1957, when the money started pouring in, he increased his salary to
a commission, 10% of the gross income of the "Founding Church."
Other Scientology groups paid similar amounts of money, 10%, called "tithes."
In addition HUBBARD received income from his numerous books for royalties, a total
of more than 250,000 dollars a year, considerably more than the president of the
United States. The IRS finally uncovered these questionable practices and revoked
the tax-exemption of the "Founding Church" and all other Scientology
establishments. As was mentioned before, this decision was not recognized by Scientology.8
HUBBARD developed a regular conspiracy theory, according to which the United
States, as well as other governments, were under the influence of a "psych"
conspiracy, cleverly worked out by professional psychiatrists who constantly worked
against him. His attacks against government and revenue authorities in text and
in lectures are still seen as justified by the SO today, who continue to recognize
the validity of the words and writings of their Founder:
"There have been in the United States several income tax attacks in Washington D.C. on myself and on the non profit status of the organizations there. (...) There was an income tax attack on myself earlier this year and last year from the United States and both of these actions were won by ourselves, which more or less removed any danger to the Washington organization, since the government was using the attacks on me as a pretext to seize the Washington organizations.(...)
Our enemies on this planet are less than twelve men. They are members of the Bank of England and other higher financial circles. They own and control newspaper chains, and they are, oddly enough, in all the mental health groups which have sprung up in the world. These chaps are very interesting fellows.
8 http://www.holysmoke.org/cos/redux.htm - The Corruption of Scientology by Chris Owen
They have fantastically corrupt backgrounds; illegitimate children; government graft; a very unsavory lot. And they apparently, sometime in the rather distant past, had determined on a course of action. Being in control of most of the gold supplies of the planet, they entered upon a program of bringing every government to bankruptcy and under their thumb, so that no government would be able to act politically without their permission." 9
|3. The Infiltration of the IRS with the "Snow White" Program
|Revocation of tax exemption was not without consequence for the IRS.
In April 1973, HUBBARD gave the order for the "Snow White" program,
whose goal it was to remove all "false documents" about the
"Church" and HUBBARD from governments around the world. The plan was
set into action by the predecessor of today's SO intelligence service, the "Guardian
Office" (GO). The GO was taken completely unawares in July 1977, though,
when the FBI conducted a search of Scientology's headquarters in Washington, D.C.,
and seized tens of thousands of incriminating documents, including the complete
details of the infiltration and the break-ins into the IRS, as well as other government
agencies. In October 1979, eleven Scientologists, including HUBBARD's wife, Mary
Sue HUBBARD, were convicted for conspiring against the government, and received
sentences of from two to six years in prison. L. Ron HUBBARD withdrew to his hide-out
in California, never appeared in public again, and died in January 1986.
The indictment of the federal court of the United States for the District of
Columbia in the criminal case against Mary Sue HUBBARD et al. contains the following
facts of the case:10
"On November 21, 1973, Jane Kember, the Guardian WorldWide (Guardian W/W)
wrote a letter to the Temporary Deputy Guardian U.S. (T/D/Guardian US) Henning
Heldt "Re Interpol Washington." 'Interpol Washington,' (...). "we
now know that Washington D.C. has police files on LRH, and if the reference
is correct, Interpol Washington has a file on LRH as well." She then directed
that "[I]t is important that we get cracking and obtain these files and I
leave you to work out how."(...)
9 "Ron's Journal 67" deutsche Übersetzung der
Bandabschrift durch Scientology 1986.
(Teile der Anklageschrift in deutscher Übersetzung).
http://www.wwwaif.net/GO/Gostip/toc.html (English version)
www.xenu.net bei Operation Clambake/Scientology
"The "project" called for the infiltration of the Interpol
National Central Bureau for the United States, then located in the United States
Department of the Treasury main building in Washington, D.C., in order to obtain
all files regarding, or, referring to, Scientology and its founder L. Ron Hubbard
The defendant Snider acknowledged the receipt of that 'project,' and by return
mail approved its issuance. Mr. Meisner thereafter assigned the "project"
to the defendant Mitchell Hermann, who was then Branch I Director in the District
of Columbia Information Bureau. The Interpol files required to be obtained by
Ms. Kember's outstanding order of November 21, 1973 (Government Exhibit No. 2)
and Mr. Snider's order of July 1974, were not taken, however, until the burglaries
of the office of Assistant United States Attorney Nathan Dodell in the United
States Courthouse for the District of Columbia in May 1976."11
In part A of the indictment, the SO order to infiltrate the IRS in Washington,
D.C. was described: "In the late summer of 1974, the defendant Cindy Raymond,
who then held the position of Collections Officer in the US Information Bureau
in Los Angeles, California, sent a directive to Michael Meisner ordering him to
recruit a loyal Scientologist to be placed as a covert agent at Internal Revenue
Service in Washington, D.C. That covert operative was to obtain employment with
the Internal Revenue Service for the purpose of taking from that agency all documents
which dealt with Scientology, including those concerning pending litigation initiated
by Scientology against the United States Government."However, a suitable
person could not be found.
In "Guardian Order 1361" authored by Jane KEMBER 21 October 1974,
the operative goal was laid out concretely:
"(...) 10. Immediately get an agent into DC IRS to obtain files on LRH.
Scientology, etc. in the Chief Council's [sic] office, the Special Services staff,
the intelligence division, Audit Division, and any other areas. (...)
16. Collect data on the Justice Dept. Tax Division for the org board, the
current terminals, and the people handling Scientology.
17. When the correct areas are isolated, infiltrate and get the files.
11 Mssrs. SNIDER, MEISNER and HERMANN were then SO members.
"Guardian Order 1361" also dictated that the origin of the data attained
should be kept under wraps, so it could be used against Scientology's enemies.
It also says in the indictment that the accused, Michell HERRMANN, director
of GO Information section 1, was to install an eavesdropping device in IRS management's
conference room for a confidential meeting, which affected Scientology, that was
to be held there. At that meeting, further methods of procedure against the various
"churches" of Scientology were to be discussed, and the policies addressed
were those needed to be able to found a "religious institution" with
tax exemption in accordance with the IRS codes. The meeting, all of which was
overheard by the GO, took place on 1 November 1974 and was transcribed by agents
who sat outside in a car.
Between the end of December 1974 and July 1975, a number of documents were
to be made off with, after which the accused, MEISNER received an order in spring
1975 to also steal documents that had nothing to do with Scientology, so as to
camouflage the theft of the SO papers. In addition the "project" received
the order to appropriate IRS letterhead paper, which would be used later on for
On 27 May 1975, Mary Sue HUBBARD wrote a letter to her GO representative, Jane
KEMBER, which described Scientology's strategy against the IRS:
"1. To use any method at our disposal to win the battle and gain our
2. To buy all the time we can in terms of years ... So we work to win,
but also to delay as time works on our side, not theirs (...)."
In July 1975, the "Church of Scientology" submitted a "Freedom
of Information Act" (FOIA) 12 request against the IRS. RAYMOND instructed
MEISNER to get information from the office of Charles Zuravin, the IRS attorney
that worked on FOIA documents. As a consequence, Scientology systematically sued
the IRS and other federal agencies to then get the documents, which Scientology
had demanded under the FOIA, out of the offices of the attorney.
|4. The End of "Snow White" and the GO |
Over 100 FBI agents participated in the search-and-seizure operations that
began 8 July 1977 on GO establishments in Washington, D.C. and Los Angeles. Over
12 The FOIA was also used as a model for a law in Germany that
regulated access to official information. For SO's use of this informational alternative,
see chap. 11.
many of which had been stolen from government offices, along with burglary
equipment and electronic eavesdropping devices were confiscated. It was revealed
during the investigation that a GO agent, who had been planted in the Justice
Department, had been working in a restricted area in which top secret CIA documents
were maintained. GO agents had also broken into the office of the attorney general.
Parallel to this, it was discovered in Canada that the GO had also infiltrated
various police positions there at the federal and state levels, as well as the
office of the attorney general. The Scientology agents were charged with crimes
that included infiltration and theft of documents from a number of state institutions,
as well as private organizations. Especially affected by these mechanizations
were Interpol, world organizations, attorneys' offices and newspapers.13
On 26 October 1979, nine high-level management personnel and GO agents were
sentenced in an American federal court for theft and conspiracy against the government,
including Mary Sue HUBBARD, who received five years imprisonment. 24 other Scientologists,
including L. Ron HUBBARD, were designated as unindicted co-conspirators.14
In a "Reply of the Scientology Church" Germany to a 1998 brochure
from the Hamburg Office for the Protection of the Constitution, which described
GO operations in detail, it said, among other things:
"The Hamburg Office for the Protection of the Constitution uses its
pages to hawk a church program, designated 'Snow White,' as having the 'character
of an intelligence agency,' and tries to present it as 'conspiratorial' and as
an illegal project that recommended illegal transactions. Actually this program,
which the Hamburg OPC confidently tries to indicate is a product of its investigations,
has been known for more than two decades. In the USA it is 'public record,' which
means fully accessible to the public."
This choice of words is somewhat conspicuous when one notices what the judgment
was, which was passed down by a regular United States Court based on the evidence
submitted, and that the accused signed an acknowledgment of guilt. It says further
in the "Reply":
"... The Office for the Protection of the Constitution did not find
a shred of proof that the Scientology Church was politically involved in Germany
or had ever in its now almost 30-year existence pursued a politically motivated
goal - much less "opposed democracy or Constitutional ideals is a hostile
or dismissive way."
13 "A Piece of Blue Sky," Jon Atack (1992) p. 240 / "Los Angeles Times."
14 Brochure of Free and Hanseatic Hamburg, State Office for the
Protection of the Constitution, "Scientology's Intelligence Service - Fundamentals,
missions, structures, methods and goals," 1998
It's also interesting that in the process of "Snow White," there
was a GO Order No. 732 of 20 April 1973, called "Project Coal." Under
no. 27, the Federal Republic of Germany was addressed and the actions to be taken
were listed as follows: 15
"The Federal Republic of Germany is peculiarly sensitive to a charge
of GENOCIDE as the Nazi behavior against the Jews provided the impetous [sic]
for the Convention. The country bends over backwards to mend its reputation as
criminals. It is a signatory.
(a) Coordinate with all GO actions and only operate through the GO. A suit is
already in progress.
(b) Using existing attorneys, obtain what legislation Germany passed to enforce
the GENOCIDE Convention which it signed and ratified.
(c) Seek to obtain, by subpoena in any existing suit and other legal means, any
files or dossiers on Scn or its principals.
(d) Compile a list of names of those who have been violating the Convention articles
or its principles.
(e) Do a rough draft of a petition to whatever authority in Germany was specified
in the legislation in (b) above. Include all references and documents as well
as the bona-fides of Sen. Cite those guilty of violations of the convention, document
exactly how and the clause violated.
(f) Have the attorney do the final draft.
(g) Submit the petition.
(h) Exploit any advantages gained.
(i) In the case of no real success, be sure that all recourse has been exhausted
as this goes before the UN and the Eu Commission.
(j) See that this concludes as a deterrent to further attack."
After the top management of the GO was convicted, the SO tried to brush off
the affair as a few leading members that deviated from the right path. All the
criminal actions were purportedly committed by a handful of people, rather than
by the "Church." This circumstance is presented by the SO in its "Reply"
to the Hamburg Constitutional Protection brochure about the SO intelligence service
the following way:
"... Hubbard, who had retired from church management back in 1966,
was first informed of what had actually occurred in September 1981 by church management.
That was the first point in time that it could be proved internally in the church
that the criminal charges against a handful of GO staff corresponded to reality.
Hubbard expressed his annoyance and explicitly praised every person who had taken
effective steps to uncover this misunderstanding."
That would supposedly mean that HUBBARD first learned about the mechanizations
of the GO four years after the FBI raided the SO headquarters in Washington, D.C.
and in Los Angeles, and two years after the sentencing of his own wife, Mary Sue
With the uncovering of the "Snow White" programs, the charges and
conviction of those responsible, the fate of the "Guardian Office" (GO)
was sealed as the SO intelligence service. Under the management of David MISCAVIGE,
the old GO was dissolved in 1983, and the "Office of Special Affairs"
was founded in its place.
Besides that, a radical restructuring of the entire structure of the "Church
of Scientology" and all its enterprises ensued. At the October 1982 "Mission
Holder Conference" in San Francisco, the new leadership ranks of David MISCAVIGE
were introduced. The reorganization, which allegedly had "the goal of
making the business structure of the Church more rigid and effective"
16, had the effect of making an overview of the individual corporations
far more difficult, especially by the IRS.
|5. The Fight for Tax-Exemption in the 1980s
|Despite the fallout of the charges and conviction
of former GO staff, the SO, under the new leadership of David MISCAVIGE and with its
new structure, continued its "war" with the IRS. The method of procedure
was more cautious, but no less determined than in the 1970s.
At exactly age 20, David MISCAVIGE took over direction of the SO as its new
strong man in 1981. In May 1982, he took the first measure to ensure his power
by installing the "Religious Technology Center" (RTC) in management
as the highest command and control committee.
16 Transcript of the tape recording of the "Mission Holder
Conference" (Jon Atack, "A Piece of Blue Sky," Internet: http://www-2.cs.cmu.edu/~dst/Cowen/essays/irslegal.html).
After HUBBARD's death in January 1986, the RTC not only assumed control of the political power the GO had up to that time, but, as of today, as the holder of all rights and owner of all trade and service
marks, also guarantees the existence of Scientology and ensures its effectiveness.
Now it was up to MISCAVIGE to continue waging the battle to once again attain tax-exemption from the IRS, but to do it in such a way that the mistakes of the 1970s would not be repeated. The SO's refusal to pay any sort of taxes remained unchanged under the new management. In September 1984, Scientology lost the proceedings to dispute the IRS tax assessments for 1970-72. This court tax decision documented
in detail how high were the amounts withdrawn by Scientology during the time in question and transferred to L. Ron HUBBARD. The judgment described the tactics as well, which were used against the IRS, such as putting the tax documents, about two million pages, out of order so that they had to be re-sorted at the cost of the American taxpayers.17
At the end of 1984, the SO came upon a new and extremely effective tactic against the IRS. They founded the front group, "National Coalition of IRS Whistle-blowers." Journalist Douglas Frantz detailed SO methods of procedure in a 9 March 1997 article in the New York Times:
"On the surface, the coalition was like many independent groups that
provide support for insiders who want to go public with stories of corruption.
But Stacy B. Young, a senior Scientology staff member until she defected in 1989,
said she helped plan the coalition as part of Scientology's battle against the
IRS in late 1984 while she was managing editor of the church's Freedom Magazine.
'The IRS was not giving Scientology its tax exemption, so they were
considered to be a pretty major enemy,' Ms. Young said. 'What you do with an enemy
is you go after them and harass them and intimidate them and try to expose their
crimes until they decide to play ball with you. The whole idea was to create a
coalition that was at arm's length from Scientology so that it had more credibility.'
Ms. Young said she recruited Paul J. DesFosses, a former IRS agent who had spoken
out against the agency, to serve as the group's president. DesFosses acknowledged
that Scientology provided substantial financing, but he denied that the church
created or ran the coalition. 'We got support from lots of church groups, including
the Church of Scientology,' DesFosses said in a recent interview.
17 Jon Atack, "A Piece of Blue Sky," chapter 3,
The coalition's biggest success came in 1989 when it helped spark
congressional hearings into accusations of wrongdoing by IRS officials. Using
public records and leaked IRS documents, the coalition showed that a supervisor
in Los Angeles and some colleagues had bought property from a firm being audited
by the agency. Soon after the purchase, the audit was dropped and the firm paid no money.
Kendrick L. Moxon, a longtime church lawyer, acknowledged that the coalition was
founded by Freedom Magazine. He said its work was well known and part of a campaign
by Scientology and others to reform the IRS.
The church's war had a covert side, too, and its soldiers were private
Michael L. Shomers, another private investigator, said he shared
none of Pena's qualms, at least initially.18 Describing his work on behalf
of Scientology in a series of interviews, Shomers said that he and his boss, Thomas
J. Krywucki, worked for the church for at least 18 months in 1990 and 1991. Working
from his Maryland office, he said, he set up a phony operation, the Washington
News Bureau, to pose as a reporter and gather information about church critics.
He also said he had infiltrated IRS conferences to gather information about officials
who might be skipping meetings, drinking too much or having affairs. "I was
looking for vulnerabilities," Shomers said. Shomers said he had turned over
information to his Scientology contact about officials who seemed to drink too
much. He also said he once spent several hours wooing a female IRS official in
a bar at a conference, then provided her name and personal information about her
to Scientology. (...)
Moxon, the Scientology lawyer, said the IRS was well aware of the
church's use of private investigators to expose agency abuses when it granted
the exemptions. Moxon did not deny hiring Shomers, but he said the activities
described by Shomers to The New York Times were legal and proper. Moxon and other
church lawyers said the church needed to use private investigators to counter
lies spread by rogue government agents."
18 PENA and SHOMERS were private investigators hired by the SO.
It was only in 1991, when the SO entered into direct negotiations with
the IRS, that the intensity of the mutual attacks by each opponent began to subside.
The following steps between the parties and the associated agreement was confidential
until the end of 1997. Douglas Frantz described the extraordinary turn of events
in his 9 March 1997 article in the New York Times: 19
"Scientology made the initial gesture toward a cease-fire when Miscavige,
the church leader, paid an unscheduled visit to the IRS commissioner, Goldberg.
Miscavige does not grant interviews, church officials said, but Rathbun20
said the Goldberg meeting was an opportunity for the church to offer to end its
long dispute with the agency, including the dozens of suits brought against the
IRS, in exchange for the exemptions that Scientology believed it deserved. (...)
A former official in the IRS exempt organization
division first disclosed the existence of the negotiating committee in a trade
journal after the agreement was announced. He said in an interview that creating
the group meant a settlement was almost preordained. 'Once the IRS decided to
set up this rather extraordinary group, the wheels were in motion for a deal,...'
Not even a stinging court decision in favor of the IRS could derail
the talks. Midway through the negotiations, in June 1992, the U.S. Claims Court
handed down its decision upholding the IRS denial of a tax exemption for Scientology's
Church of Spiritual Technology. The ruling underscored the agency's longstanding
concerns over the commercial nature of Scientology and other matters. (...)
A portion of the correspondence between the agency and church from
the two years of negotiations was released when the exemptions were granted three
and a half years ago. (...) The church provided extensive information on its finances
and operational structure. (...)
In August 1993, the two sides reached an agreement. The church would
receive its coveted exemptions for every Scientology entity in the country and
end its legal assault on the IRS and its personnel.
19 New York Times, 9 March 1997, http://www-2.cs.cmu.edu/~dst/Cowen/essays/nytimes.html
20 Marty RATHBUN is a high-ranking SO member.
There was just one more step. Scientology entities were required
to submit new applications for exemption, which were to be evaluated by the agency's
exempt organizations division. But something unusual occurred there, too. (...)
The agreement was announced on Oct. 13, 1993. The IRS refused to
make public any of its terms, including whether the church paid any back taxes.
The IRS also refused to discuss the legal reasoning behind one of the biggest
turnarounds in tax history."
|7. The First Television Interview with David MISCAVIGE
|How much the IRS spent for its investigations of Scientology
in the 40-year dispute, including the cost of defending itself from endless lawsuits
filed by the "Church" and its members, is not known. All the same it's
easy to determine that the SO remains true to the policies of its founder, L.
Ron Hubbard: "The purpose of the suit is to harass and discourage rather
In 1992, Judge Ronald Swearinger of the Los Angeles district told an American
lawyer's magazine he believed that Scientology had slit his tires and drowned
his dog while he presided over court proceedings against the "Church."
The SO contests these accusations. In 1993, Judge James M. Ideman was presiding
over a suit involving Scientology in Federal District Court in Los Angeles when
he took the unusual step of withdrawing from a case that concerned Scientology.
He said he could no longer preside fairly because the church "has recently
begun to harass my former law clerk who assisted me on this case."
Time magazine published journalist Richard Behar's article, "Scientology:
Cult of Greed" in May 1991, which called the church "a hugely
profitable global racket that survives by intimidating members and critics in
a Mafia-like manner." 21 The "church" and a member
sued Time magazine and Behar for libel. This process cost each side several million
dollars. The SO complaint was dismissed by a federal court judge in 1996, but
Scientology appealed. The proceedings finally came to a close ten years later,
on 12 January 2001. A US appeals court found that Behar's article had not been
maliciously libelous. 22
How much of a threat Scientology viewed this cover story in their battle for
tax exemption is expressed in three events. Behar was subjected to strong attacks
on the part of the SO, which he wrote about in his article "The Scientologists
"For the TIME story, at least 10 attorneys and six private detectives
were unleashed by Scientology and its followers in an effort to threaten, harass
and discredit me. (...)
By day's end, I later learned, a copy of my personal credit report -- with
detailed information about my bank accounts, home mortgage, credit-card payments,
home address and Social Security number -- had been illegally retrieved from a
national credit bureau called Trans Union. (...)
Two detectives contacted me, posing as a friend and a relative of a so-called
cult victim, to elicit negative statements from me about Scientology."
When MISCAVIGE was giving his 8 October 1993 speech on tax exemption in Los
Angeles, he mentioned Behar in connection to unfair methods of procedure by the
"His name is Richard Behar. The same SP who later wrote the "Time"
article. (...) Just when it looked like the investigation was waning, Behar was
brought on the scene to write a total hatchet job article accusing us of all manner
of crimes. The plan was to fan the flames so that senior law enforcement officials
would be pressured to make a move."24
How strong this pressure was felt by the SO and how much MISCAVIGE was set
on countering Behar's "accusations" manifested itself in a subsequent
event. Ted Koppel, the reporter on ABC News Nightline, tried for almost nine months
to get an interview with MISCAVIGE on Richard Behar's article. When MISCAVIGE
finally consented to an interview on 14 February 1992, it was a sensation, since
this was his first appearance on television. When he spoke with Koppel it was
quite evident that MISCAVIGE adhered to HUBBARD's "Tech" and simply
raised assertions that couldn't be proved, true to the motto, "Never defend,
"KOPPEL: -but why were you so —what was it about the Time magazine
story that so upset you?
23 The SO designates its enemies "SP" ("Suppressive
25 Methods of procedure, Management and Social techniques according
Mr. MISCAVIGE: Because it wasn't reporting on anything, it was an attempt
to cause something. Richard Behar is a hater.
As the interview went on, Koppel asked Mr. MISCAVIGE whether he had testified
in court as to his accusations against Behar:
"KOPPEL: You have affidavits?
Mr. MISCAVIGE: From them? Of course not. You think they'd admit it?
KOPPEL: Well, I mean, you're...
Mr. MISCAVIGE: But they're the ones who said it."
The complete interview is available on the Internet, and also accessible as a video file.
|8. The 1 October 1993 Agreement between the IRS and Scientology
The official translation of the agreement between the IRS and the SO encompasses
somewhat more than 60 pages, and will therefore not be included here in full.
Excerpts are attached at the end of this brochure.
It is again emphasized in the introduction of the document that the two sides
are making an effort to end years of controversy, and they intend "that the
relationship between them begin anew." In addition, it is stipulated "that
the Service will not examine the Church for any year ending prior to January 1,
1993. In exchange the SO and the organizations associated with it obligate themselves
to not initiate any legal proceedings against the Service or its employees for
the time prior to the date of the agreement. It is further explicitly stated that
the "Church will make a single payment that is intended to extinguish any
potential tax liability that may be due and unpaid by any Scientology-related
entity for all tax years up to and including the tax year ending in 1992. Thus,
as of December 31, 1992, the Church will be current with respect to all income,
employment and estate tax liability."
In Section II. RESOLUTION OF OUTSTANDING ISSUES, items that led to tax law
controversy in the USA are addressed.
L. Ron Hubbard released the "DIANETICS" book and later published "Scientology:
The Fundamentals of Thought" as its ideological superstructure.
The Church of Scientology, Church of American Science and Church of Spiritual
Engineering were founded in Elizabeth, New Jersey by L. Ron Hubbard.
2 January 1957
The Internal Revenue Service grants a tax exemption to the "Scientology Organization"
18 July 1967
The Internal Revenue Service revokes tax-exemption for the SO.
20 April 1973
L. Ron Hubbard gives the order for the Snow White Program.
21 October 1974
Jane Kember, director of the SO intelligence service, the "Guardian Office"
(GO), issues Guardian Order 1361. In it the "Snow White" orders from L. Ron Hubbard are laid out.
1 November 1974
GO agents illegally eavesdrop on an IRS conference about Scientology's tax-exemption.
7 July 1977
The FBI raids Scientology's headquarters in Washington, DC and Los Angeles and seizes tens of thousands of incriminating documents.
Eleven Scientologists, including Mary Sue Hubbard, are convicted of conspiracy and imprisoned for between two and six years.
David MISCAVIGE takes over SO leadership.
The "Religious Technology Center" (RTC) is founded.
Under the leadership of David MISCAVIGE, the GO is disbanded and the "Office of Special Affairs" (OSA) founded.
"The National Coalition of I.R.S. Whistle-blowers" is founded. Scientology's aim was to undermine IRS credibility.
Scientology hires private investigators to investigate the personal lives of senior IRS officials.
A meeting occurred in Washington, D.C. of high-ranking Scientologists David MISCAVIGE and Marty RATHBUN with IRS Commissioner, Fred T. Goldberg Jr.
13 August 1993
The IRS agrees to grant tax exemptions to every SO entity in the United States, plus foreign entities based in the UK and Cyprus. The Church files new applications for exemptions as part of the agreement.
1 October 1993
The agreement comes into force. Scientology pays the IRS $12.5 million in back
taxes and drops all the lawsuits brought by Church entities and individual Scientologists
against the IRS.
8 October 1993
David MISCAVIGE holds a "victory rally" attended by 10,000 cheering Scientologists in the Los Angeles Sports Arena.
30 December 1997
The secret agreement is leaked to the Wall Street Journal, which promptly puts it on its Web site and leads with a front-page story.
It is stated, with reference to set time limits, how the particulars are to be handled on the part of the "Church" with regard to declarations and/or changes inside the individual business areas of the church. It is further indicated that both sides will forego any lawsuit. The payments the SO has to make to resolve the open points of controversy are set in advance.
"B. Payment in Consideration of Resolution of Outstanding Issues.
1) At the same time this Agreement is executed, Church of Scientology International is paying by banker's draft the sum of Twelve and One-Half Million United States Dollars (US$12,500,000.00), receipt of which the Service hereby acknowledges, as consideration for the settlement of outstanding issues with the Service as set forth in this Agreement."
The section closes with the determination that the stipulations of section II are final and conclusive, "notwithstanding the seven-year transition period set forth in other provisions of this agreement." The transition period refers to the years 1993 to 31 December 1999.
In Section IV, OBLIGATIONS AND UNDERTAKINGS IN THE TRANSITION PERIOD, the tax requirements the SO has to meet are laid out and the persons associated with these obligations are named. The Service made it a requirement of the "Church" to install a committee to implement the appropriate conclusions and meet regularly with IRS staff. The persons involved are high-ranking SO staff members who have
been members for many years and are viewed by MISCAVIGE as trustworthy.
It is stated in another part of the agreement text that a report is required at year's end, and that accounting procedures are to be following in accordance with the agreement. The mode of contact between the IRS and the "Church" is also specified, reporting procedures as well as meetings, which are to be held annually. Guarantees, operating procedures and monetary fines in case of transgression
are also arranged.
The duration for the submission of annual reports from an auditor, who reported to the CTCC,
27 was set at three years, beginning with the close of 1993.This means that no reports were required from 1996 on.
Paragraph C arranges the fiduciary reporting requirements and determines that at year's end, information about the total compensation of the most highly compensated individuals within the SO has to be submitted.
27 "Church Tax Compliance Committee," see attachment.
Besides that, modifications in organizational documents, payment of dividends, ownership change or the creation of new entities are to be disclosed. The length of the fiduciary reporting period is also set at three years, from 1993 through 1995.
Paragraph D indicates that the statements of the "Church," as well as the CTCC, are in agreement with applicable law. Paragraph E. concerns operational modifications, such as payment and transfer of funds, as well as dissolution of certain areas of business and transference of their assets to SO institutions.
Section V of the agreement deals with the disclosure of information as set forth in legal requirements. In doing this, a distinction is set between the information contained in IRS Form 1023 and the other information in other parts of the agreement.
In summary it's determined that the IRS will keep the agreement confidential and will not reveal any detailed information about the scope or nature of the deal it cut with the SO. The only thing to be disclosed was to be the official tax exemption of about 150 Scientology corporations. The fact that both sides are so concerned about confidentiality might have something to do with the 25 years of past dispute. Obviously everything possible was done to avoid further public discussion.
Section VII fixes the "Treatment of Parishioners' Contributions." It is stated that the Service agrees not to contest the deductibility of Church of Scientology fixed donations in connection with qualified religious services until 31 December 1999. It is further stated that the treatment of donations, as well as the associated tax refunds, will be decided in accordance with the tax laws of the United States. It is agreed to that donations will not be examined again until 1 January 2000, and then only if the requirement for this has been established through legislative modification.
|9. SO Declarations on IRS Form 1023
Of particular interest is a reference that, as of 1992, the US Supreme Court
represented the opinion that Scientology exhibited a purely commercial character.
The "agreement" addresses the form 1023, in which Scientology has to
answer IRS questions. While most of this is not accessible to the public, some
has been obtained through FOIA and published on the Internet.28
Among other things, the IRS asks in form 1023 about lawsuits in which Scientology
and its members/former members were involved, and how the objections made by SO
to the judgments should be rated.
As an example of the sort of argument used by the SO, only the most well-known
case to date will be cited, the "Church of Scientology vs. Gerald Armstrong,"
which had a devastating effect not only upon the SO, but on its Founder, L. Ron HUBBARD.
Armstrong was a staff member of the "Church of Scientology" from
1969 to 1982, and was not only acquainted with HUBBARD, but also worked closely
together with him. In his statement of 22 July 1982, he testified:
"I was a member of the Sea Organization of Scientology from February
1971 to December 1981, during which time I held many positions and was in many
locations where I directly observed L. Ron Hubbard and other Scientology executives.
At no time did I ever get the impression that Mr. Hubbard or any other senior
executive considered that Scientology is a religion. (...)
In January 1980, I was assigned to a project to collect materials about
L. Ron Hubbard for the purpose of providing documentation for a biography to be
written by Omar V. Garrison. During the following two years I read several thousand
pages of documentation, much of it written by Mr. Hubbard himself. Never before
had anyone within Scientology ever had all this information assembled in one place
or had the opportunity to view and assimilate the whole truth about L. Ron Hubbard.
From these documents and other sources I learned that Mr. Hubbard had continually
misrepresented himself and had lied about his past, his accomplishments and credentials.
I learned also from the documents I collected that Mr. Hubbard had lied about
how and why Scientology had been established as a "religion". (...)
I learned through my study of the documentation I assembled, and from more
than ten years of observation of Mr. Hubbard and the Scientology movement, that
Mr. Hubbard has cruelly deceived his followers to the point where they will themselves
lie and attempt to deceive others about the truth concerning him and Scientology."
When Armstrong left Scientology at the end of 1981, he took some of the documentation
that had been entrusted to him by HUBBARD so he could prove his own credibility.
Later these documents were handed to biographer Omar Garrison. Armstrong was declared
by the SO to be a "Suppressive Person,"30 subjected to a campaign of libel
and taken to court.
30 See footnote 23.
In the civil complaint of Scientology vs. Armstrong, Judge Paul Breckenridge, Jr., presiding over the California Superior Court, issued a decision that described the methods of operation used by HUBBARD and his organization as follows:
"In addition to violating and abusing its own members civil-rights, the organization over the years with its "Fair Game" doctrine has harassed and abused those persons not in the Church whom it perceives as enemies. The organization clearly is schizophrenic and paranoid, and the bizarre combination seems to be a reflection of its founder LRH. The evidence portrays a man who has been virtually a pathological liar when it comes to his history, background, and achievements. The writings and documents in evidence additionally reflect his egoism, greed, avarice, lust for power, and vindictiveness and aggressiveness against persons perceived by him to be disloyal or hostile."
In part three of the IRS Form 1023, which is available on the Internet, the Service, in reference to this court decision, asked whether the "church" was in agreement with the court's position. Naturally it wouldn't be expected that the SO would let Judge Paul Breckenridge, Jr.'s decision go without comment or in any way agree with it, as it was this decision in particular that continued
to influence the court in its decisions, which resulted in tax exemption being denied. Here the SO finally saw its big chance to present the matter from its point of view, thereby defusing that particular judgment. On Form 1023, the IRS's question was answered cleverly:
"We have included some background information here and an epilogue to the decision in question. That is because the Service has continuously thrust the Armstrong case at us, demanding an explanation. The Armstrong case decision was so inflammatory and intemperate that it was used to stigmatize the Church in the legal arena and make other outrageous decisions possible. As we shall demonstrate
below, all this decision ever involved was Armstrong's state of mind, which subsequently obtained evidence proved conclusively to be one sordid, sado-masochistic nightmare. Furthermore, Armstrong's state of mind horror stories have fallen on deaf ears in recent litigation. Relying on Armstrong or the Armstrong decision is wholly unjustified."
Another part of that text describes how Armstrong left the "Church"
at the end of 1981, taking with him confidential documents that had been entrusted to him. In summer of 1982, the SO said it had obtained proof that Armstrong had stolen thousands of documents from the archives to give to his attorney. Both these people were purported to have the intention of making money from these papers. In September 1982, Armstrong was said to have then, faced with imminent court proceedings, represented that he only took the documents to inform the public about HUBBARD and the "Church."
It says further in the SO statement:
"The Statement of Decision adopted as the facts of the case the allegations which Armstrong had made in his trial brief. These allegations included the statements on which Armstrong premised his justification defense; i.e., that defendant "... became terrified and feared that his life and the life of his wife were in danger, and he also feared he would be the target of costly and harassing lawsuits." The judge went on to pontificate on the psychological mind-set of not only Mr.
Hubbard, but Scientology at large. The only lawsuit that there was to fear was the one that was ultimately filed for return of the stolen documents. It never would have been brought had Armstrong voluntarily returned the documents when asked, despite the theft."
Armstrong was correct in voicing the idea that the SO was persecuting him with annoying and extravagant court proceedings, because in 1993, when the "agreement" was settled with the IRS, SO lawsuits against Armstrong were still in progress. The organization tried (and tried), with all means, to silence Armstrong, since he was one of the few people who had been able to look at the documents about L. Ron HUBBARD, and by doing so had been cleared of any misapprehensions about
the house of lies upon which HUBBARD's person as well as the SO were built. As to how the SO's explanation in Form 1023 of the Armstrong case could have satisfied the IRS to the point of bringing about a complete change of attitude on their part cannot, however, be answered here.
10. David MISCAVIGE's Speech on Tax Exemption
The "agreement" with the IRS could be one of the greatest successes of Scientology in the USA. Therefore it is not at all surprising that David MISCAVIGE announced the "spectacular victory" on 8 October 1993, at a celebration for the 9th anniversary of the "International Association of Scientologists" (IAS), in the Los Angeles Sports Arena.
Now if one would believe that because of the repeated assurances in the "agreement"
that any mutual attack or accusation had ended, MISCAVIGE's speech would also have been conspicuous in this regard. But the manner and style of his presentation, the vehemence of his words against government authorities and especially against the IRS are far more reminiscent of settling accounts than of a factual presentation.
A special issue of "Scientology News" German-language edition Nr. 32/1993 for the celebration of the ninth anniversary of the IAS, said:
"'The war is over,' David Miscavige, the chairman of the Board of the Religious Technology Center, announced to the tumultuous applause of more than 10,000 Scientologists in Los Angeles. He said that the bitter, 40-year battle with the IRS of the United States had finally ended. The announcement was made on 8 October in the Los Angeles Sports Arena during the ninth anniversary of the International Association of Scientologists, which was the largest gathering of Scientologists ever to take place."
The transcript of David MISCAVIGE’s speech is available, however, only in the English language - on the Internet.32 MISCAVIGE began his account with 1950, the year HUBBARD came out with the "DIANETICS" book. He did not omit any of HUBBARD's "conspiracy theories," and began with the alleged attack by the "psychs," which according to HUBBARD had been
extremely concerned about the publication of "DIANETICS" being so popular. Among other things, MISCAVIGE described the attack by the "psychs" and their alleged "co-conspirators," the IRS, with the following words:
"In the old days the Romans threw the Christians to the lions. So the psychs turned to the modern day, 20th century inquisitors. The creatures of the night. That's right, the vampires. And not little vampires, but the ones who suck the blood from the whole country and so the villain of this plot came on the scene - the Internal Revenue Service."
The theory that the psychiatrists caused all the difficulties between the SO and the IRS is repeatedly referred to in MISCAVIGE's speech.
MISCAVIGE also included the "false reports" that are purportedly produced and distributed worldwide:
"You've heard about false reports being spread through the world.
And often we have talked of Interpol being the conduit for these reports abroad.
That is all true. But it was always the IRS creating the documents and sending
them out in the first place. Don't forget - the IRS hadn't found the Church doing
anything wrong. They just wanted to get us. So they had to resort to pure lies.
Picking up a technique from their mentor, Adolf Hitler, in his book, 'Mein Kampf',
they subscribed to the theory that "the bigger the lie - the more easily
it would be believed."
That is not the only passage in which MISCAVIGE puts the IRS in the same ballpark
with Nazi ideology. He also attacked former US President Nixon, who he said the
SO had given first place on its internal list of enemies.
"With Nixon finally resigning the presidency in disgrace, the IRS's problems with Scientology were just beginning to build. They had been attacking the Church with the purpose of destroying it for over a decade. Yet Scientology had only grown. And the IRS was starting to lose on the legal front.They had won the case against the Founding Church's tax exemption on a technicality but their win was short-lived, as that Church had long since ceased to be the mother church and the hoped-for destruction of Scientology didn't occur. So a new strategy was in order. In 1974, the IRS convened a meeting with all their top people. It was 'the Final Solution Conference on Scientology.'"
Even if not directly stated, the allusion to the April 1943 Wannsee Conference,
which was to decide the "Final Solution to the Jewish question," cannot
be overlooked. MISCAVIGE emphasized, "We now have the minutes of that
meeting which make it clear just how evil their motives were. IRS agents and lawyers
sat around conspiring about how to deal with the Scientology problem."
MISCAVIGE did not mention that those minutes were the result of a GO eavesdropping
operation (see chapter 3), which carried legal consequences with it. He was trying
to present Scientology as an innocent victim only trying to defend itself from
In another passage, MISCAVIGE complained that after the removal of the GO and
the subsequent reorganization of the SO, the IRS showed no interest at all in
discussion. He saw the reason for this as the IRS having had undercover agents
in the GO, who were removed when it was. Then MISCAVIGE went into great detail
about the "attacks" from the IRS, and accused them of the most vicious
tricks, the purpose of which was supposedly to eradicate the "church."
He didn't leave out the press or the courts, either:
"Our church staff and attorneys fought this hard in the courts and
were able to get hearings before judges across the country to declare these IRS
actions illegal. And, that's where we stood at the beginning of 1991. Scientologists were
being harassed left, right and center and our hopes were hanging on the judicial
system while judges across the country considered our motions to stop this latest
and most vicious assault. And then, just when it looked like we may get a fair
shake,' Time' magazine hit the newsstands. It was but a few weeks later that we
found one of the judges on our case had framed the cover and placed it in his
chambers. And that the IRS attorney coordinating this assault against Scientology
was playing tennis with this same federal judge. And although we may not know
who won those tennis matches, you can be sure it wasn't the Church of Scientology!"
MISCAVIGE was not particular about using extreme language in representing the
attacks of the tax authorities or the pressure put on his organization, e.g.,
"A battle of life and death was being fought on a daily basis,"
and "The IRS had made this war so personal that they would make it dangerous
to just be a Scientologist." Of course there was no mention about the
methods that Scientology used on the IRS and its staff.
Afterwards MISCAVIGE came to the events of October 1991 and described the "meeting"
with the IRS chief. This was the way he said the goal of tax-exemption had been
"The magnitude of this is greater than you may imagine. And it may
take some time to sink in. It hasn't with me yet! It's been a long, hard war -
unprecedented in fact - but it is over! The most notable point is that Scientology
organizations have been recognized as bona-fide and fully qualifying for tax exemption
to the fullest extent of the law. What exactly does this mean? To begin, there
are no outstanding tax assessments from the IRS against any Scientology or related
entity in the United States. They are all gone. It also means that all Scientology
organizations organized not-for-profit have been so recognized and are tax exempt.
That's right-every single one of them. There are many non-religious groups we
sponsor-which use LRH's tech to improve society in areas like drug rehabilitation,
study, criminal reform and morals. All such groups have been recognized as fully
Later on MISCAVIGE described how he imagined the future of Scientology in Europe:
"And what about all those battles and wars still being fought overseas
- many of which were brought about originally by IRS false reports. Well, there's
good news on that front too. To begin with, we will waste no time carrying news
of this new breakthrough to all foreign countries. Those battles have been being
held in place by suppressive governments just quoting the IRS. The line has been
'You are an American religion. If the IRS doesn't recognize you, why should we' The answer is —
'They do. And now, you better as well!' Make no mistake — there is much
work to be done on those fronts. But we have already taken the first steps in
using this IRS victory to end the rest of the battles. What about all of the false
reports I mentioned tonight. We are now in possession of them and will be receiving
many more documents out of our files. We will diligently work to clean up all
MISCAVIGE referred to a letter that the IRS had agreed to send out "to the governments of every nation," which would include a factual report about Scientology, that the SO itself had written.
At the end of his speech, MISCAVIGE took a surprising turn and found moderate words for the IRS:
"But not everybody in the IRS is suppressive. In fact, over the years the IRS finally assembled a team of some very decent individuals to resolve these matters with us. Ones who were sick and tired of the war and who were courageous enough to stand up for what was right. (...)
The real thing I want you to understand is that we didn't just get exemption,we ended a war.We wanted to end all conflicts, to have a fresh start - to get rid of any potential future conflicts so some SP33 couldn't start it all up again. It took time.
33 See footnote 23.
It took a lot of work. It resulted in a peace treaty.
I even brought a copy of it to show you. This represents what it took to resolve each and every outstanding conflict with the IRS. That's how big this war was. I want you to understand something else. The power of our group is greater than you can imagine. When we stand shoulder to shoulder, there is nothing we can't accomplish."
MISCAVIGE is cited as asserting that Scientology and its former enemy, the IRS, would now be friends, and that "The end of this war should not be considered as an end of cycle so much as a beginning of ... our greatest expansion ever." He concluded his speech with the following words:
"I am declaring a general amnesty for all Scientologists. Except for suppressive acts, any and all offenses committed are forgiven. Full details of this amnesty will be made available to you. Avail yourself of it. The future is ours."
|11. New Developments in the USA
In the recent past there was a court hearing in the USA in which a complainant
refereed to the agreement between the IRS and the "Scientology Organization."
A couple of the Jewish Orthodox faith filed a complaint that the tax authorities
did not view the school tuition money for their children, who went to a school
that taught according to their beliefs, as tax-deductible. In the basis for the
complaint, the couple included the October 1993 agreement between the "Church
of Scientology" and the IRS, as published by the Wall Street Journal in December
1997. Because the IRS had granted the "Church of Scientology" similar
deductions, it was a violation of jurisdictional equality and the terms of the
contract set in law to refuse the same deductions to them as Orthodox Jews, as
the complainants argued.
The complainants could not implement their claim to tax deductible school tuition,
however, and Judge Stephen Reinhardt voiced the following in the basis of the
"The IRS is simply not free to enter into closing agreements
with religions or other tax-exempt organizations governing the deductions that
will be available to their members and to keep such provisions secret from the
courts, the Congress, and the public." (...)
"An IRS closing agreement cannot overrule Congress and the Supreme
Court. If the IRS does, in fact, give preferential treatment to members of the
Church of Scientology -- allowing them a special right to claim deductions that
are contrary to law and rightly disallowed to everybody else -- then the proper
course of action is a lawsuit to put a stop to that policy. The remedy is not
to require the IRS to let others claim the improper deduction, too."
34 The basis of the decision of the United States Court of Appeals
for the Ninth Circuit, Pasadena, CA of 29 January 2002, not yet in force.
The Jewish couple appealed this 2002 decision, especially because one of the
judges had stated it appeared to him that Scientology, founded by L. Ron Hubbard,
a sci-fi writer from the 1950s, was granted tax advantages in violation of the
First Amendment. The hearing, which had originally been scheduled for 23 March
2004, was postponed until October 2004 on procedural grounds. The SO tax lawyer
refused to take a position on the topic, because her client was not part of the
In the various newspaper articles that have appeared on the case in the US
press, mention is made of demands to disclose the grounds for the SO receiving
tax exemption in 1993 from the IRS. The sentence cited by judge Barry Silverman
multiple times seems noteworthy: "The sole issue before us is whether the
Sklars' claimed deduction is valid, not whether members of the Church of Scientology
have become the IRS's chosen people.."
|12. The Effects of Tax Exemption on Germany
In the Form 1023 which the SO was required to fill out by the IRS, there is
a document of 16 December 1989, which concerns the "Snow White" program
for the Federal Republic of Germany, and which apparently is still in effect.
The objective of the program is still to find "false reports" on the
Church and LRH in government files and to "expunge" them. The SO answered
the question posed by the IRS in response to this program, in particular with
reference to the GO's methods of operation in the years 1973 to 1977, by stating
that the document in question had been stolen from church offices. In addition
it was stressed that the "Snow White" program was still in use:
"In an ongoing effort to practice the Scientology religion free from
the interference of misinformed government agencies, the Church continues to pursue
the Snow White objectives with the legal means at its disposal. Only when the
Church is free from governmental harassment and is accorded its rights will the
need for Snow White activities vanish."
The agreement between the IRS and Scientology of October 1993 ended on 31 December
1999. A new agreement was settled, but the IRS is keeping it secret. From the
SO viewpoint, however, the "Snow White" program has not lost validity
in Germany. Since the beginning of the 1970s the SO has had establishments in
Germany that receive their instructions from the USA via the European headquarters
of the SO in Copenhagen. Tax exemption from the highest US tax agency and the
associated briefings of the authorities in Germany has the consequence that the
SO has spread their claim to acknowledgment as religion to other nations.
In October 1996 - before surveillance of Scientology by the Office for the
Protection of the Constitution began in Germany - the press spokesperson of SO
Hamburg, Gisela HACKENJOS, gave the "TAZ" newspaper an interview. In
it she stated expressly what the SO strove for: "We are a church. We
are a religion. Look at America. The Germans will have to wake up. Done, over
As early as June 1994 a four-page edition of the "Freedom" SO newspaper
appeared in which the IRS's tax exemption was again presented and commented upon.
The leading article read, "Acknowledgment for Scientology,"
and it once again contained the most important points of the agreement, which
had previously appeared in the special edition of the "Scientology News."
It was further presented that the IRS not only had granted tax exemption to
Scientology and more than 150 of its associated corporations, but that it had
simultaneously found that Scientology was considered to be a "charitable,
However in none of the "agreement's" section is Scientology referred
to as a religion, it just addresses tax exemption for a non-profit organization
in accordance with US tax laws. The IRS October 1993 statement to Scientology
contains a reference that the recognition of tax-exempt status has come about.
In the USA, the state is prohibited from deciding what is or is not a church/religion.
Therefore the proceedings in the Scientology case are not surprising. At the end
of an article in the "Freedom" magazine is an interesting statement
which proves that the SO in Germany is in no regard separate from the management
in the USA and their orders:
"But the Scientology Churches in Germany spread
the same teachings in Germany, they work according to the same directives and
follow the same finance system as in America. Their staff are bound to the same
goals - the spiritual freedom of mankind. Their religious dogma and practices
Interestingly, only four months later a reference appeared for the first time
in the US State Department's human rights report that Scientology and its adherents
were discriminated against in Germany. This tactic continues to be used by the
SO, whereby it does not flinch from simulating written proof, thereby deceiving
- In November 1997 German and American media published a report about a German
citizen who sought and attained asylum in the USA. The woman stated her reason
for asylum was that she was a Scientologist and she had left Germany for "fear
of persecution of her faith." Actually, the Scientologist woman wanted to
avoid impending measures to be taken by the German tax authorities. In summer
2000 an investigation by journalists of "Stern" news magazine (issue
27/2000) revealed that the case had apparently been staged by Scientology to expose
- In 1998 the "Menschenrechtsbuero der Scientology Kirche Deutschland
e.V." was founded in Munich. Its stated goal was to expose supposed attacks
or rights violations by German agencies against the SO and to introduce the appropriate
steps. So, among other things, numerous protest actions for "Suppression
of Religious Freedom" have been held by this "human rights office"
in Germany, all of which indicate that Scientology received tax exemption and
therewith acknowledgment as religion in America.
In the 1980s the SO founded the "Kommission zum Schutz des Buergers gegen
Datenmissbrauch e.V." ("Commission to protect citizens against data
abuse") as the predecessor to this "human rights office," even
though inquiries can be made at any time through the federal and state data protection
laws and the government agencies also have reporting obligations. It can be surmised
from this that the SO intends to bring about a general law about the viewing of
government files so as to be able to determine what information about it individual
agencies have. Apparently German agencies are expected to open their files in
a manner similar to the "Freedom of Information Act" (FOIA).
- Laws comparable to the FOIA, called freedom of information laws, have existed
in Brandenburg since 1998, in Berlin and Schleswig-Holstein since 2000 and in
Nordrhein-Westfalen since 2002. At almost the same time the SO founded the "Aktion
Transparente Verwaltung - Gegen Korruption und fuer Informationsfreiheit"
in Munich and Hamburg. It is stated on their pages in the Internet that they are
for passage of a freedom of information law, such as already exist in the states
of Berlin, Brandenburg and Schleswig-Holstein.
In doing this, the SO is probably predominately concerned with getting a look
into the files of the Office for the Protection of the Constitution and with expunging
all "false reports" from official documents. Germany has what the SO
regards as a "suppressive government," which is to be treated in accordance
with the organization's policies and missions.
Since, as it has stated, the SO has obligated itself to the same goals in Germany
as in America35 , it may be assumed that the same path to attaining
tax exemption will be pursued here as in the USA. The corresponding legal disputes
in the area of German associations have been pending over seven years in Baden-Wuerttemberg.
During the course of these proceedings, the organization also attempts to give
court decisions its own interpretation. A current judgment by the Cologne Revenue
Court36 was celebrated as an "important partial victory"
by the SO. These proceedings resulted from a 1994 SO application for tax exemption of
license fees for three of its German licensees under Article 12 of the Double
Taxation Agreement (DTA) between the USA and the Federal Republic of Germany.
Because the Federal Revenue Office turned down the corresponding exemption information,
the SO filed a complaint in which the Cologne Revenue Court decided in favor of
the SO for the following reasons: according to the DTA, a natural or legal person,
resident to one of the agreeing nations (in this case, the USA), who draws revenue
from a different agreeing nation (in this case, Germany), can claim advantages
through the DTA if it is generally exempt from income tax in one of the agreeing
nations. The SO submitted its approval from the IRS, from which it can be seen
that the complainant has been classified as exempt from US federal income tax
since 1 October 1993. This tax-exemption of the SO in the USA, the nation of residence
in accordance with the DTA, has the effect, however, based on Article 28, that
this tax exemption was tied to the question in dispute. The question of whether
the complainant was a commercially engaged organization in Germany was not considered
during the process of tax exemption in the USA. In that regard, the Cologne Revenue
Court did not make a decision as to whether the SO was to be considered a charitable
organization in accordance with any section, including section 51, of the German
tax law. What was determined was that a certain product or service from the state
of residence and its license fees had legally regulated tax advantages in accordance
with Article 28 of the DTA. Questions of religion or worldview had no role in
this. Besides that, the Cologne Revenue Court found, among other things, in its
"The relationship between the complainant and its licensor was an
economical determination, according to both the complainant's account and the
presentation of the respondent. Special relations between the complainant and
the licensor with reference to issues of worldview have been repeatedly and explicitly
disavowed by the complainant in the proceedings at hand." 37
On this item the decision points in a different direction than the SO's self-presentation.
When one considers how long the SO persevered in the United States in the fight
for its tax exemption, this confirms that the writings issued by L. Ron HUBBARD
continue to be in force, and this continues to be stressed by the organization
in its publications.
35 "FREEDOM" magazine of June 1994.
36 Cologne Revenue Court, "Finanzgericht Koeln, Az.: 2 K 6626/96,"
available on the Internet.
In a 15 August 1960 policy letter, "Department of Government Affairs," HUBBARD explained:
"Peace is bought with an exchange of advantage, so make the advantage
and then settle. Don't ever defend. Always attack."
And in "Ron's Journal" Nr. 34 of 13 March 1982, "The Future of Scientology," HUBBARD summed up by saying:
"The enemy cannot even plan for tomorrow. We work for eternity."
SO efforts have already been successful in Italy. On 25 October 2001, the Supreme Court in Rome decided that the "Scientology Church" would be acknowledged in Italy as a church community. In connection with that, the SO will enjoy extensive tax advantages.
Although the SO is still considerably far from its goal of being acknowledged in Germany as a religious community or being considered charitable, there is still reason for watchfulness in view of its ideology and its methods of operation in achieving its goals.
1. In the following, excerpts from the agreement between the SO and the IRS
Closing Agreement On Final Determination Covering Specific Matters
Under section 7121 of the Internal Revenue Code, the parties named herein and
the Commissioner of Internal Revenue make the following closing agreement:
WHEREAS, the Church of Scientology and its constituent entities (the "Church")
and the Internal Revenue Service (the "Service") have a long history
of controversy spanning over 30 years;
WHEREAS, the Church has pending with the Service applications on Form 1023
requesting that the Service recognize certain constituent entities within the
Church as exempt from income taxation pursuant to section 501(a) of the Internal
Revenue Service Code, as exclusively charitable organizations described in section
501 (c) (3) of the Code;
WHEREAS, the controversy between the parties includes litigation (hereinafter
"the section 170 litigation") in which the deductibility under Code
section 170 of parishioners' payments to the Church in connection with their participation
in religious services of the Scientology faith is at issue;
WHEREAS, the Church signatories and individual Scientologists have initiated,
supported and/or otherwise participated in litigation under the Freedom of Information
Act (FOIA) to compel the Service to disclose information withheld by the Service
in response to FOIA requests about its treatment of Scientologists and Churches
of Scientology (hereinafter "FOIA litigation");
WHEREAS, in October of 1991, the key officials of the Church, David Miscavige
and Mark Rathbun, approached the Service seeking to negotiate the resolution of
the above-described matters, and met with the then Commissioner;
WHEREAS, at this meeting, the Commissioner indicated his desire to resolve
all outstanding issues between the Church and the Service and appointed the Assistant
Commissioner to negotiate and conclude a settlement with the Church on behalf
of the Service;
WHEREAS, the Church and the Service intend this closing agreement to be final
and conclusive with respect to all matters but, while also final and conclusive,
that its provisions relating to the continuing duties and obligations of both
parties during the transition period shall generally be effective until December
NOW IT IS HEREBY DETERMINED AND AGREED, for purposes the Internal Revenue laws
of the United States, and in consideration of the provisions contained herein
A. Establishment of Church Tax Compliance Committee
1. Purpose of Church Tax Compliance Committee. The Church Signatories and
others as described below shall form a Church Tax Compliance Committee (the "CTCC").
The purpose of the CTCC is (...)
2. Membership of Church Tax Compliance Committee. The CTCC shall consist of
Corporate, At-large and Individual members. (...)
b. At-large members of CTCC. The Watchdog Committee (as described in the Qualified
Written Material) shall be an At-large member of the CTCC and shall be represented
on the CTCC by the Chairman of the WDC. In addition, the International Finance
Director and the Chief Accountant International shall serve as At-large representatives
on the CTCC. (...)
c. Individual CTCC members. The individual members of the CTCC are David Miscavige,
Norman Starkey, Mark Rathbun and Heber Jentzsch. No individual member of the CTCC
shall be permitted to withdraw from service on the CTCC, except by reason of death,
being adjudicated an incompetent, or by mutual agreement of the parties to this
3. Responsibilities of CTCC. In general, the CTCC is responsible for overall
implementation of the duties and obligations imposed with respect to the Scientology-related
entities by this Agreement during the transition period. Specific responsibilities
and duties of the CTCC shall include the following: (...)
4. Actions of CTCC. David Miscavige will act as the initial Chairman of the
CTCC. He may be removed from this office and replaced by another individual CTCC
member by majority vote of the CTCC members. The CTCC shall promptly notify the
Service of any change in the Chairmanship. The Chairman may act on behalf of the
CTCC, and bind the CTCC, except where a specific provision of this Agreement requires
the action of more than one CTCC member. (...)
D.2.e. Any other funds of a Scientology-related entity received from sources within
the United States may be couriered overseas for deposit only if, and only to the
extent, there are in place appropriate financial controls to ensure the processing,
handling and tracing to such deposits to the account of the Scientology-related
organization to which such payment is drawn. (...)
6. Norman F. Starkey, as Trustee of Author's Family Trust B, shall, no later than December 31, 1993, effectuate the transfer of substantially all of the corpus and income in Author's Family Trust B, including all the shares of Author Services, Inc. ("ASI") as permitted under the will of L. Ron Hubbard to the Church of Spiritual Technology ("CST") without consideration. (...)
10. The members of the CTCC shall, no later than December 31, 1995, effectuate the dissolution of WISE, Inc. and the transfer of all of its assets, including but not limited to its rights to the Scientology religious marks, to the Inspector General Network.
The date of this agreement is 1 October 1993.
It is concluded with date and signature of the "individual members" of the CTCC: David Miscavige, Norman F. Starkey, Mark Rathbun and Heber Jentzsch.
Signing as CTCC "members-at-large" are Marc Yager, Chairman of the "Watchdog
Committee," Jonathan Epstein, International Finance Director and Nigel Oakes,
Chief Accountant International. Mark Rathbun signed as president for the "Religious
Technology Center" (RTC) and Heber Jentzsch as the president of "Church
of Scientology International." Other signatures are provided under power of attorney from the "Church of Spiritual Technology," the "Church of Scientology Flag Service Organization,
Inc.," the "Building Management Services" and the "Church of Scientology Religious Trust."
John E. Burke, Assistant Commissioner (Employee Plans and Exempt Organizations) and James J. McGovern, Associate Chief Counsel (Employee Benefits and Exempt Organizations) signed for the IRS.
2. Advice for Internet users
If any of the Internet addresses cited in this brochure have changed, you can search on the text cited through the popular search machines on the archive pages provided on the Internet.
Advice for distributors
This informational material is released by the Baden-Wuerttemberg State Office for the Protection of the Constitution in the scope of its legal duties to inform the public. It may not be used by parties or candidates during elections to get votes. This applies to all German elections. (Other rules are given pertaining to German elections.)
All publications are available in the German language.