1. I am over 18 years of age and a resident of the State of Texas. I have personal knowledge of the facts set forth herein and, if called as a witness, I could and would competently testify thereto.
2. There are many factors surrounding the releases attached to defendants Motion for Summary Judgement, attached as Exhibits A & B which are false and/or misleading.
A. The first point is that I do not believe these are the papers which we signed when we left the cult in 1987. We were forced to sign quite a few different papers before being allowed to leave. At the time, we had asked for copies of all of the papers we had signed but were not allowed to have copies of the releases.
B. One of the conditions of being allowed to leave without being declared “fair game”1 was that we report to Mark Rathbun
_____________________ 1When the cult declares a person a Suppressive Person he automatically becomes Fair Game. Per the cult’s founder and existing policy when a person is Fair Game he may be lied to, cheated, stolen from and destroyed with no protection from the cults ethics codes. If the person is considered a threat in the eyes of the cult, then scientologists and their agents are encouraged or even paid to do so. This has been documented on many occasions and I am personally familiar with it.
1
on a regular basis. We did do this for a while and repeatedly asked for copies of these releases. We were put off with various excuses on each occasion. We never did obtain a copy of the releases. It is clear to my now that this was so that the cult’s “dirty tricks unit” could change the releases to fit their claims and then supply them as “evidence” if and when they felt they needed them. They didn’t dare supply us with doctored copies which we did not sign as they knew that this alienate us and they didn’t want to supply us with actual copies as this would preclude them from making changes later.
3. At the time that these releases were signed both my wife and myself had been receiving intensive “security checking”. This “security checking” was conducted by Ray Mithoff. Ray Mithoff was at that time (and still is to the best of my knowledge) the highest trained and most senior security checker in all of scientology. He is so senior in fact that normally all he ever does is oversee others doing it. There were two reasons why he was used. The first was obviously because of the intimidation factor he would have and the second is not so obvious.
A. Part of our security checking was so that we could be interrogated on how much we knew and so that the potential
2
threat of our leaving could be analyzed by David Miscavige. Miscavige trusts few people and lives in constant fear that his crimes will become public and land him in jail as it has the cult’s earlier leaders. Mithoff is the only security checker Miscavige was willing to trust. This was the second reason Mithoff was used. 2
B. In retrospect, it is easy to see that this security checking was done to soften us up and remind us of what powers the cult could bring to bear on us should we refuse to cooperate fully. Their tactics obviously worked because at the time, we were in terrible fear that we would not be allowed to leave.
4. We were not allowed to seek legal counsel at the time that we signed these releases. Two of the cults’ attorneys were brought out to further intimidate us. We were told that we could ask them questions if we had any. It was made clear that
________________
2 Mithoff was normally used in such cases as he is trusted and considered a loyal minion by David Miscavige. David Miscavige is the senior most of the founders “messengers” and took control upon Hubbard’s demise. It was Mithoff under the alias of “George Jones” who personally oversaw Michael Meisner’s security checking after the cult had kidnapped him. Meisner was the cult’s agent who had infiltrated various government agencies and stolen documents under the direct control of Hubbard, Hubbard’s wife and the rest of the cult’s management. It was Meisner (having again escaped from the cult and sought protection from the Justice Department) whose evidence lead to the 1977 raids on the cults Los Angeles and D.C. offices by the FBI. I know of Mithoff’s involvement because he spoke to me personally about it displaying great pride in his activities.
3
we could definitely not seek other counsel.
5. It had been my understanding through earlier contacts with scientology’s dirty tricks unit known as the Guardian’s Office and later the Office of Special Affairs that these releases had no legal binding whatsoever. In my early years as a staff member I had seen the various policies issued by the Guardian’s Office concerning releases. Releases were to be signed by every public person and staff before and after every single service they received. The idea being that the person was to be convinced that he had no recourse for lousy service and false promises. Guardian’s Office personnel had told me repeatedly that they did not hold water and were merely a deterrent. This was later confirmed by cult attorney John Peterson.
6. To me the intention behind the releases themselves appeared unlawful. Although not trained in law, it was obvious to me that the intent included the obstruction of justice. Part of our security checking was to ensure that we had no plans to go to any government agencies to give them evidence of crimes being committed by cultists or their agents. It was stressed at the time of the signing of the releases that if we spoke to government agents about any “confidential information” we had concerning the cult that we would be in violation of our agreements and that we would be sued. Additionally we were to
4
withhold information and avoid testimony in any civil litigation where the truth may be harmful to the cult or aid someone else seeking justice. With the purpose of the releases including the withholding of information from lawful authorities I certainly did not feel that they could possibly be legal or binding.
7. The conditions surrounding the sale of our horse and the loan from the cult need to be made perfectly clear. Defense attorneys constantly try to twist this into some evidence of philanthropy on the cult’s part. This just isn’t the case at all.
A. David Miscavige came to visit us in our motel room a few days before we were allowed to leave. Miscavige asked us what our plans were. We told Miscavige that we didn’t have any specific plans but that since I knew some people in the area (southern California) I would probably work something out. Miscavige made it clear that he did not want us to stay in southern California but wanted us to go to Texas. He did not want us connecting up with any of our friends in southern California be they current or former scientologists. We told him that we had limited funds and would have to stay in California long enough to sell our horse and make a little money so that we could travel. Miscavige reiterated his objection to us staying in California and stated that we would have to work it out to go back to Texas.
5
B. The next day Mark Rathbun suggested that the cult buy the horse from us and that they loan us some money so that we could leave right away and go to Texas. Rathbun stated that this had been Miscavige’s idea.
C. This loan and purchase of the horse had nothing to do with the releases.
8. There had been a fire at one of the ranches I had worked at and all of the belongings of four people had been destroyed in the fire. I was one of them. A claim was being negotiated with the insurance company. Rather than have me wait for the insurance claim to settle I was given $1,040.90 which was the value of the goods destroyed in the fire. This is money which I understood was going to be later reimbursed by the insurance company.
9. I received the pay due to me according to their rules but this was just for the previous pay period. I never received any compensation or wages for many hundreds of hours of work I had performed and been forbidden to include on my time card during the previous thirteen months or so while I worked for the Norman Starkey, Trustee of the Estate of L. Ron Hubbard. This was not religious work and the estate was not a non-profit entity. I was supposed to be receiving minimum wage.
6
10. The cult purports that my wife Vicki had overall responsibility for RTC’s legal matters and litigation and such. This is only partly true. David Miscavige, the Chairman of the Board at Author’s Services, Inc.3 had final say over what did or did not occur and constantly issued streams of orders concerning everything from personnel transfers to finances. Miscavige either directly or indirectly oversaw all major decisions and even minor ones if it were his whim.
11. While it is true that Vicki (and even myself on occasion) did assign others to the Rehabilitation Project Force, it is not mentioned that there is a basic tenet in scientology’s ethics policies which state that if you fail to assign someone to the RPF and your boss feels you should have then you can be assigned to the RPF with them. In other words it is enforced from the top down. Miscavige as the senior person often assigned people for no other reason that whim. I saw him do this to others and he threatened me on several occasions. He considered such activities his “management style”.
________________
3Author Services, Inc (ASI) was a corporation set up by Miscavige, Starkey and Lyman Spurlock. It’s purpose was to manage Hubbard’s money and oversee the cults’s finances and ensure that Hubbard was getting his “cut”. I was briefed on this by Miscavige himself when ASI was first being set up.
7
12. It is stated that after Vicki escaped from the desert camp where she was being held that she was able to travel freely on her own. This is not true. We were under constant surveillance by the cults’ security personnel and all of our belongings were being held to ensure our cooperation. We feigned cooperation to prevent being declared suppressive persons and opening ourselves up to “fair game”.
13. It is stated that the cult paid three hundred dollars more for our horse than I had paid for it. This is false and in fact they paid three hundred dollars less than I had paid for it.
14. While I am not a psychologist nor am I a psychiatrist, it is clear to me now that both Vicki and I had previously been brainwashed by the scientology cult. This process began in 1972, continued through 1973 when we were forced to give all of our worldly possessions to the cult leaders and has only recently ended since we were able to escape their influence. At the time we left in 1987 we were heavily under their influence and even to this day my wife has nightmares where she is still being held captive by the cult.
A. It was only once we started to become “unbrainwashed” that we began to realize the extent of suffering, misery, fear and intimidation that we were put through.
8
15. Claims are being made to the effect that due to the cult’s philanthropic efforts on our behalf we left as happy little cultists. Nothing could be farther from the truth. At the time of my wife’s escape from Happy Valley I was called in by Miscavige and Mithoff and interrogated until four o’clock in the morning in an attempt to get me to break up with her. When this failed I was called upon to try to get her back. I pretended to do this and even went so far as to encourage Jesse Prince and David Bush (the two men who escaped with Vicki) to go back. But during this whole time we planned to go along with whatever the cultists wanted in order to be allowed to leave without being declared “fair game”. We lived in constant apprehension and fear, not daring to believe that we could pull it off but praying against hope that we could. By the time we had successfully made it through our security interrogations we would have signed anything to be allowed to leave.
16. Scientology purports itself to be a religion. In the early 1970’s when I first became involved with scientology, the cultists were quite open about the fact that they called themselves a religion only for tax purposes. It was only later, in the mid 70’s that the Guardians Office forced the “churches” and franchises to conform to “religious image programs”. These programs covered everything from hanging up crosses to having staff “ordained” and having get togethers on Sundays and calling
9
them Sunday services. It would never stay in though because it was obviously bogus. Finally the threats became great enough to force it in. Hubbard himself, in earlier unedited versions of his taped lecture called “The Road to Truth” stated that there was no god but not to let the “wogs” (non-scientologists) know or they would never join. When scientology was being set up in Mexico it was decided not to make the claims of being a religion due to the fact that it would effect their ability to make money. The same thing goes for a couple of other countries. When the decision was whether to be a religion or make money, make money won out. I know of all of these points from my own personal experience.
17. I have been informed by my former attorney that although we have made discovery requests, Defendants have failed and refused to comply with even the simplest requests. During this time they have barraged us with burdensome and costly demands exceeding all reason. Additional evidence is currently in the hands of Defendants but withheld from Plaintiffs. This evidence is favorable to Plaintiffs’ opposition to Defendants Motion for Summary Judgement.
I declare under the penalties of perjury under the laws of the United States of America that the foregoing is true and correct.
10
Executed this 15th day of January 1989, at Dallas, TX.
Internal Revenue Service
Church of Spiritual Technology
419 North Larchmont, Suite 162
Los Angeles, Ca 90004
Department of the Treasury
Washington, DC 20224
Person to Contact:
Mr. M. Friedlander
Telephone Number:
(202) 566-6701
Refer Reply to:
E:EO
Date: [stamp] JUL 8 1988
Employer Identification Number: 95-3781769
Form:1120
Tax Years: All Years
This is a final adverse ruling as to your exempt status under section 501 (c) (3) of the Internal Revenue Code.
This ruling is made for the following reasons:
1. You have failed to establish that you are operated exclusively for exempt purposes as required by section 501 (c (3) of the Code. You have not demonstrated that your activities and purposes conform to exempt purposes and activities as required by section 501 (c (3) of the Code.
You are one of a number of organizations which were created pursuant to a reorganization of the Church of Scientology which took place in 1981 and 1982. The reorganization was undertaken after the Service revoked the exempt status of the Church of Scientology of California, the former “Mother Church” of the denomination. The basis of the revocation was that the California church was an ordinary commercial enterprise, the Church’s income inured to L. Ron Hubbard, founder of the Scientology religion, and the Church had violated public policy by conspiring to impede the Service from assessing and collecting taxes which were lawfully due. Church of Scientology of California v. C. I.R., 83 T.C. 381 (September 1984). The revocation was sustained by the Tax Court and upheld by the Court of Appeals for the Ninth Circuit. 823 F. 2d 1310 (9th Cir. 1987).
An earlier case involving a Scientology organization had also resulted in a finding of private benefit to Mr. Hubbard and members of his family.Founding Church of Scientology v. U.S., 412 F. 2d 1197 (Ct. C1. 1969),cert. den., 39 U.S. 1009 (1970).
In the Church of California case, cited above, the Tax Court described how the Church attempted to frustrate the Service’s efforts to examine its financial affairs. The Church maintained no books or journals to record
[CT 6241]
-2-
Church of Spiritual Technology
and systematize its financial transactions. Therefore, the examination had to proceed on the basis of millions of separate checks, invoices, and disbursement vouchers. The Church’s accountant saw to it that these documents were provided in no semblance of order. He advised another church to “give the IRS agent a bunch of records in a box in no semblance of order, to place the agent in a dark, small, out-of-the-way room, [and] to refuse to give practical assistance locating records.” In the face of such tactics, the IRS spent approximately two years in an unsuccessful attempt to audit the Church’s 1958 and 1969 financial operations.
In addition to the above tactics, the Church knowingly and purposely misled the IRS concerning extensive operations it conducted in the United Kingdom. It concealed from the examiners the fact that it regularly received debit advices from foreign banks in lieu of canceled checks. It never produced canceled checks from some of its accounts which it maintained in the name of another corporation. When checks were produced, they were sometimes detached from their stubs. Boxes of records were mislabeled. The Church intentionally delayed in providing requested records and in some instances it never provided the records at all.
In order to establish whether the reorganized Church of Scientology was operated exclusively in furtherance of exempt purposes, we sought to obtain detailed information from you and from the other newly created entities which had filed applications for recognition of exemption. Although some information was initially provided, the information was incomplete or partial. Eight of the organizations eventually withdrew their applications without providing the information we had requested.
While the applications were pending, witnesses gave testimony in court cases involving churches of Scientology. See Church of Scientology of California v. Gerald Armstrong, No. C 420153 (Calif. Super. Ct., July 20, 1984);Founding Church of Scientology of Washington, D.C., Inc., et al. v. Director, Federal Bureau or Investigation, et al., 802 F. 2nd 1448 , cert. den., 56 U.S.L.W. 3231 (October 6, 1987). The testimony was to the effect that L. Ron Hubbard continued to control the Church of Scientology for his private benefit. Witness testimony in the Armstrong case alleged that the project known as Mission Corporate Category Sort-Out (MCCS) had been undertaken by the Church of Scientology of California in 1980. The alleged purpose of the MCCS project was, according to the testimony of Laurel Sullivan, to devise a new organizational structure to conceal L. Ron Hubbard’s continued control of the Church of Scientology. In the Founding Church.v. Director, F.B.I. case, to which the Service was a party, the government successfully argued that L. Ron Hubbard should be required to appear and be deposed because he was a managing agent of the Church. Mr. Hubbard did not appear and the case against the government defendants was dismissed with prejudice.
[CT 6242]
-3-
Church of Spiritual Technology
We asked the remaining applicants who had not withdrawn their applications to comment on the matters noted in the Armstrong and Founding Church v. Director F.B.I. cases. They responded that the testimony related to other organizations and time periods, attacked the credibility of the witnesses, and stated that L. Ron Hubbard did not hold any position of control in any church of Scientology even though he was still revered as the founder of the religion.
We were told that the present corporate structure had been designed after those responsible for the MCCS project had been dismissed from the church and that the work done on the MCCS project was not considered or consulted in designing the new organizational structure presently in place. At the same time, we were furnished for the first time a chart showing levels of authority and departments within the new organizational structure. One of the departments, the Commodore’s Messenger Organization (International), exists within the corporate structure of Church of Scientology International, the new “Mother Church” of the denomination. According to allegations made in the Armstrong case, L. Ron Hubbard controlled the church through the Commodore’s Messenger Organization utilizing David Miscavige, Pat Broeker and Anne Broeker to carry out his orders. David Miscavige, Anne Broeker, and Lyman Spurlock were the original trustees of Religious Technology Center. Mr. Miscavige enjoys a position of influence in the reorganized Scientology structure which we have been informed derives from”moral authority” rather than from any official position in the corporate structure. Lyman Spurlock is president of Church of Spiritual Technology and, along with Mr. Miscavige, is an employee of Author Services, Inc. Author Services, Inc., is a for-profit corporation formed to provide services to L. Ron Hubbard in connection with exploitation of patents and copyrights which Mr. Hubbard owned.
On January 7, 1986, we issued an initial adverse ruling on your application. You submitted a written protest to our initial adverse ruling. In your protest we learned for the first time of the existence of still other organizations which were related to the new Scientology operating structure. Following your protest conference, which was held in January, 1987, we asked you to provide more detailed information about these new “international” organizations, including International Association of Scientologists, International SOR Trust, SOR Management Services, Ltd., Scientology International Missions Trust, and International Scientology Religious Trust. In a letter dated November 24, 1937, we noted that you had previously agreed to supply that information to us. However, you did not supply the information.
In support of the protest to our initial adverse ruling, we were supplied with copies of affidavits dated December 4, 1986, from Gerald Armstrong and Laurel Sullivan. Ms. Sullivan was the person in charge of the MCCS project. The affidavits state that the new church management “seems to have returned to the basic and lawful policies and procedures as laid out by the founder of the religion, L. Ron Hubbard.” The affidavits conclude as follows:
[CT 6243]
-4-
Church of Spiritual Technology
“Because of the foregoing, I no longer have any conflict with the Church of Scientology or individual members affiliated with the Church. Accordingly, I have executed a mutual release agreement with the Church of Scientology and sign this affidavit in order to signify that I have no quarrel with the Church of Scientology or any of its members.”2
The history of Scientology’s operations detailed in the Church of California case includes a lack of adequate financial records, public policy violations, deceptive practices and the maintenance of enemies lists against whom any actions, however illegal, were justified. The California case also demonstrates inurement of net earnings and benefit to the private interest of Mr. Hubbard, operations that primarily furthered commercial purposes conducted amid continuous representations denying control by and benefit to Mr. Hubbard, and a tenacious denial of the actual state of the organization’s affairs in the face of overwhelming evidence establishing the true nature of the organization’s operations. More recently, attempts to conceal Mr. Hubbard’s ongoing control of Scientology were alleged in the Armstrong case. Utilizing testimony any witnesses from the Armstrong case, the government successfully argued that Mr. Hubbard was a managing agent of the Church of Scientology as late as 1984. See the Founding Church v. Director, F.B.I. case, cited earlier.
The events detailed in these court cases, which span almost the entire period of Scientology’s history, create an inference that Scientology, even after reorganization, is not operated exclusively for exempt purposes. The fact that Mr. Armstrong and Ms. Sullivan elected to settle their personal differences with Scientology does not detract from the relevance of the statements they previously made concerning Mr. Hubbard’s use of Scientology organizations to serve his private interest. Our experience with your organization similarly reflects a continuation of the pattern of inurement and benefit to the private interest of Mr. Hubbard, operations that primarily further commercial purposes, and denials of control by and benefit to Mr. Hubbard for periods prior to his death despite contrary judicial and Service findings. Blanket denials that Mr. Hubbard personally profited from his position of influence in Scientology and assertions that your operations exclusively further exempt purposes do not dispel this inference.
Mr. Hubbard died on January 24, 1986. But, his death did not alter the history of Scientology’s prior operations or make available complete information about your actual operations. Moreover, the same individuals who controlled Scientology operations prior to Mr. Hubbard’s death, and who participated in arrangements which resulted in inurement and private benefit, continued to control your operations and those of the other top level Scientology organizations after Mr. Hubbard’s death. Thus, the possibility of inurement and private benefit continued after Mr. Hubbard’s death and more complete information about your operations and financial affairs was required to assure that your operations had changed to eliminate any further private benefit.
[CT 6244]
-5-
Church of Spiritual Technology
For the reasons explained above, in a letter dated March 17, 1988, we proposed to review your books of account and records and those of Church of Scientology International and Religious Technology Center. As explained in our letter of :March 17, 1983, the purpose of this review was twofold. First, to determine the integrity of your financial and accounting systems so we could verify that the information you had provided was accurate. Second to verify that no part of your net earnings inures to the benefit of any private shareholder or individual and that there is no other disqualifying activity.Church of Spiritual Technology, Church of Scientology International, and Religious Technology Center agreed to participate in the financial reviews pursuant to the letters of March 17, 1988. Church of Spiritual Technology, Religious Technology Center and Church of Scientology International informed us by letter dated June 24, 1988, that they would no longer participate in the review. The refusal to continue the review, concentrating on those areas of concern, and their failure to fulfill the terms of the March 17, 1988, agreement, prevents us from concluding that Scientology’s operations have changed and that activities previously found to be disqualifying for purposes of section 5O1(c)(3) of the Code have been discontinued. Therefore, we conclude that you have not established that you are operated exclusively for exempt purposes as required by section 501(c) (3) of the Code.
2. You are operated for a substantial non-exempt commercial purpose.
In our initial adverse ruling of January 7, 1936, we concluded that you were operated for a substantial non-exempt commercial purpose because your activities assisted other organizations in maximizing sales of goods and services associated with the practice of Scientology.
In your protest and subsequent submissions you argued that your activities were engaged in for religious rather than commercial purposes. You contended that the provision of goods and services for a fee, which is characteristic of Scientology, was a permissible means of providing funds necessary for Scientology to support its operations, provide reserves for renovations and expansion, and to attract potential new members to the religion.
[CT 6245]
-6-
Church of Spiritual Technology
We have carefully considered your arguments, but fail to see that sales of goods and services for a fee by Scientology organizations under policies and directives which emphasize sales and profits does not result in a primary purpose of engaging, in activities similar in nature to those of an ordinary commercial enterprise, in which profits are the primary goal, rather than in advancing religious purposes. The fact that the fees provide a source of funds for operating expenses and future expansion and dissemination does nothing to distinguish these fee-for-service operations from similar activities of ordinary commercial enterprises. Therefore, by assisting and aiding in the marketing of Scientology, you are engaged in activities which further a substantial non-exempt commercial purpose.
Your archival activities relate to the materials constituting the scriptures of Scientology. These materials consist of the written and spoken works of L. Ron Hubbard on the subject of Scientology. Prior to his death, Mr. Hubbard held the copyrights on these materials. The works you collected were being commercially exploited by Mr. Hubbard and some of the organizations licensed by him. You were supported by income paid to you by some of the organizations engaged in this exploitation, notably Religious Technology Center and Church of Scientology Flag Service Organization, Inc., a subordinate of Church of Scientology International. You were thus performing functions which benefited these organizations and furthered their objective of marketing Scientology products and services.
After Mr.. Hubbard’s death, Religious Technology Center and Church of Scientology International and its subordinates have continued to market Scientology products and services. Your collection of original Hubbard writing and tape recordings enhances their marketing efforts because the products they market are derived from these original writings and tape recordings. Therefore, you are operated for a substantial non-exempt commercial purpose.
In addition, the refusal to continue the review agreed to in the letters of March 17, 1988, to Church of Spiritual Technology, Church of Scientology International, and Religious Technology Center, concentrating on those areas of concern, and their refusal to fulfill the terms of the March 17, 1988, agreement prevents us from concluding that Scientology’s operations have changed and that activities previously found to be disqualifying for purposes of section 501(c) (3) of the Code have been discontinued. Therefore, we conclude that you have not established that you are operated exclusively for exempt purposes as required by section 501(c) (3) of the Code.
[CT 6246]
-7-
Church of Spiritual Technology
3. You are operated for the benefit of private interests and your net earnings inure to the benefit of private individuals.
In our initial adverse ruling, we concluded that your operations furthered the private interest of and resulted in inurement of net earnings to L. Ron Hubbard because he received royalties on the sales of products associated with the practice of the religion he founded. We also concluded that your activities served Mr. Hubbard’s private interest through your participation in a plan to exploit Mr. Hubbards’s trademarks, trade names, service marks, copyrights, and patents through licensing and assignment arrangements. We also concluded that your activities served the private interests of and resulted in inurement of net earning to organizations associated with Mr. Hubbard.
In your protest you called our attention to the fact of Mr. Hubbard’s death and noted that his estate is in probate. Church of Spiritual Technology is the principal beneficiary of the estate and will receive the royalty income formerly received by Mr. Hubbard if it is determined to be exempt under section 501(c) (3). Based on these facts, you contend that private benefit, if there was any, ceased upon the death of Mr. Hubbard on January 24, 1986.
Mr. Hubbard’s death does not erase the benefit and inurement to his private interest that occurred.
Further, both before and after Mr. Hubbard’s death, you made the original writings and other materials formerly owned by Mr. Hubbard available to Church of Scientology International and Religious Technology Center in exchange for so-called “contributions” from Religious Technology Center and Church of Scientology Flag Service Org, Inc., a subordinate of Church of Scientology International. Religious Technology Center and Church of Scientology International engage in marketing Scientology to the public in a manner indistinguishable from that of an ordinary commercial enterprise. Therefore, your provision of the original Hubbard Materials to Religious Technology Center and Church of Scientology International serves the private interests of Religious Technology Center and Church of Scientology International.
In addition, the refusal to continue the review agreed to in the letters of March 17, 1988, to Church of Spiritual Technology, Church of Scientology International, and Religious Technology Center, concentrating on those areas of concern, and their refusal to fulfill the terms of the March 17, 1988, agreement prevents us from concluding that Scientology’s operations have changed and
[CT 6247]
-8-
Church of Spiritual Technology
that activities previously found to be disqualifying for purposes of section 501(c) (3) of the Code have been discontinued. Therefore, we conclude that you have not established that you are operated exclusively for exempt purposes as required by section 501(c) (3) of the Code.
4. You have failed to establish that you are not operated for the benefit of private interests and that your et earnings do not inure to the benefit of private individuals.
Trusts and corporations can be used to siphon income from allegedly exempt organizations for the benefit of private individuals. This happened in the Church of California case. An allegedly religious trust and dummy Panamanian corporations were used to funnel money to L. Ron Hubbard.
Although the organizational structures employed by Scientology have changed since the California case, you have not clearly established that your relationship with the new entities furthers your exclusively exempt purposes. The past history of Scientology’s operations suggests that the purpose of these organizations may be to disguise the fact that private interests are the ultimate beneficiaries of the reorganized operating structure.
An example of an organization which may serve private interests is International Publications Trust (IPT). Prior to the formation of IPT, L. Ron Hubbard granted licenses to New Era Publications (NEP) to produce Scientology books and E-meters. NEP sublicensed Bridge Publications, Inc. (BPI). The license and sublicense agreements provided for royalty payments from BPI to NEP and from NEP to L. Ron Hubbard. Then, IPT was formed to act as the holding company parent of BPI and NEP.
You informed us that IPT has two foreign trustees, Church of Scientology Religious Education College, a corporation, and Geoffrey Clunie, an individual. Our requests for additional information about IPT and its trustees and their relationship to the reorganized Scientology structure have not been answered. So, we see in place an entity that controls Scientology publications and E-meter production controlled by persons about whom no information has been provided. In the absence of any other explanation for this arrangement, we have no alternative but to conclude that the holding company’s real purpose could be to benefit Mr. Clunie’s private interest or the private interest of the College, just as intervening trusts and corporations were used to mask benefits to the private interest of L. Ron Hubbard.
[CT 6248]
-9-
Church of Spiritual Technology
It is also clear that NEP and BPI share in the commercial exploitation of these properties to benefit their own private interests. Mr. Hubbard’s death did not effect the rights that NEP had already received from Mr. Hubbard prior to his death. Therefore, NEP and BPI are continuing to benefit from their part in the commercial exploitation of these properties even though Mr. Hubbard is no longer sharing in the benefits of the commercial exploitation. Even if Church of Spiritual Technology does eventually become the owner of the patents and copyrights formerly owned by Mr. Hubbard the licenses granted to NEP will still be in effect. Thus the private benefit to NEP and BPI is ongoing even though Mr. Hubbard is dead and even though a number of new Scientology organizations have been created. Further, it has not been established that other new and old organizations about which our requests for detailed information remain unanswered are not sharing in private benefit. The potential beneficiaries include Author Services, Inc., SOR Management Servies, Ltd, International Scientology Film Trust, and International Scientology Religious Trust.
The same persons who were in charge of Scientology prior to Mr. Hubbard’s death hold positions of control or influence in some of these new organizations. For example, persons who hold positions of influence in the reorganized Scientology structure also hold positions in Author Services, Inc., a for-profit corporation formed to benefit L. Ron Hubbard, Lyman Spurlock, David Miscavige, Greg Wilhere, Terri Gamboa, Marion Meisler, Maria Starkey, and Becky Hay, persons who hold influence in the reorganized Scientology structure, also hold positions in Author Services, Inc. Author Services, Inc., is now performing the same function of “collecting royalties” for the beneficiary of L. Ron Hubbard’s estate. Thus, as happened in the Church of California case, the income of an allegedly exempt organization (Church of Spiritual Technology should it obtain recognition of exemption) will be passed through a for-profit corporation which is controlled by persons who also hold positions of influence in the Scientology structure.
A similar problem exists with regard to the “central reserves” of Church of Scientology International and its subordinate churches. A nonexempt foreign entity, SOR Management Services, is being paid under a contract to “manage” these reserves. Again, the income of allegedly exempt organizations is being passed through a nonexempt organization controlled by persons who hold positions in, or act as nominees for, organizations in the topmost levels of the reorganized Scientology structure.
[CT 6249]
-10-
Church of Spiritual Technology
Moreover, a newly revealed organization, International SOR Trust, about which our inquiries remain unanswered, has an ongoing relationship with some of the organizations engaged in the exploitation of the properties formerly owned by Mr. Hubbard. For example, at one time International SOR Trust purchased the stock of Bridge Publications, Inc., from Church of Scientology of California and later disposed of the stock to International Publications Trust.
Furthermore, individuals closely associated with Cancorp Investment Properties, a for-profit British Columbia corporation allegedly formed to serve the private interests of L. Ron Hubbard, about which we inquired, have been in positions of influence in the reorganized Scientology structure. You refuse to provide detailed information about Cancorp Investment Properties or Religious Research Foundation, another organization allegedly formed to serve the private interest of L. Ron Hubbard, about which we also inquired.
The proliferation of associated entities also includes a number of other new “international” organizations, about which we have inquired but you have not responded to our inquiries. Since the Scientology operating structure is the only funding source for these organizations, they and the persons who control then are also sharing in the income generated by the activities of. Church of Spiritual Technology, Church of Scientology International, and Religious Technology Center.
In light of the past history of Scientology’s operations, this continuing sharing in the net earnings of Scientology by nonexempt entities is sufficient by itself to raise serious concerns about private benefit and inurement. Nonetheless, you have chosen to ignore these concerns or have provided incomplete or partial information which is not adequate to establish that private benefit and inurement are not flowing to nonexempt entities, some of which employ and are directed by the same people who hold positions of influence in the new Scientology operating structure. Such self-dealing does not lose its identity as private benefit and inurement merely because it is conducted through intermediary individuals and/or organizations.
Accordingly, we find that you are not exempt because you have failed to establish that you do not operate for the benefit of private interests and that your net income does not inure to private individuals contrary to the prohibition contained in section 501(c) (3) of the Internal Revenue Code. In addition, the refusal to continue the review agreed to in the letters of March 17, 1988, to Church of Spiritual Technology, Church of Scientology International, and Religious Technology
[CT 6250]
-11-
Church of Spiritual Technology
Center, concentrating on those areas of concern, and their refusal to fulfill the terms of the March 17, 1988, agreement prevents us from concluding that Scientology’s operations have changed and that activities previously found to be disqualifying for purposes of section 501(c) (3) of the Code have been discontinued. Therefore, we conclude that you have not established that you are operated exclusively for exempt purposes as required by section 501 (c) (3) of the Code.
Furthermore, the Service considers your failure to fulfill the terms of the March 17, 1988, agreement as constituting a failure to exhaust administrative remedies, as required by section 7428(b) (2) of the Code.
Contributions to your organization are not deductible under Code section 170.
You are required to file federal income tax returns on the above form. Based on the financial information you furnished, it appears that returns should be filed for the tax years shown above. You should file these returns with your key District Director for exempt organization matters within 30 days from the date of this letter, unless a request for an extension of time is granted. Returns for later tax years should be filed with the appropriate service center as indicated in the instructions for those returns.
If you decide to contest this ruling under the declaratory judgment provisions of section 7428 of the Code, you must initiate a suit in the United States Tax Court, the United States Claim Court, or the District Court of the United States for the District of Columbia before the 91st day after the date that this ruling was mailed to you. Contact the clerk of the appropriate court for rules for initiating suits for declaratory judgment. Processing of income tax returns and assessment of any taxes due will not be delayed because a declaratory judgment snit has been filed under code section 7428.
If you have questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Sincerely yours,
(Signed) E. D. Coleman
E.D. Coleman
Director, Exempt Organizations
Technical Division
I am over the age of eighteen and if called to the stand and sworn under oath I could competently testify as follows:
1. I was involved with the Church of Scientology from 1972 to April 1987. During this time I held various management roles within the Church of Scientology. In 1982 I became an official for the Religious Technology Center which controlled the use of Scientology trademarks. At one time I was head of this entity.
2. Prior to my tenure at RTC, I was a Commodore Messenger in Clearwater, Florida.
3. Around 1981 and into 1982, Scientology disbanded the Guardian’s Office as members of the same had been arrested for theft of government documents and obstruction of justice.
4. I personally read dispatches setting forth L. Ron Hubbard’s plan that Scientology should separate itself from the acts that were done in the Guardian’s Office and therefore the Guardian’s Office should be disbanded.
5. Your declarant was selected to go to Los Angeles and take over the United States Guardian’s Office for purposes of reforming it and disbanding it. Pursuant to said plan, I reviewed many of the Scientology documents seized by the FBI. The accuracy and legitimacy of these documents were confirmed to me by other Scientology officials, including Norman Starkey and staff members of the Guardian’s Office who were on staff at the time documents were seized. These informants included Joe Lisa, Tom Ritchie, and Laurie Zurn.
1
6. While the Guardian’s Office was disbanded, the same was done in “name” only. The role was assumed by the Office of Special Affairs International located in Los Angeles at the old Ceders Complex.
7. Scientology still ran covert operations that included planting people as spies, bugging of rooms and raiding people’s garbage, particularly opposing legal staff, looking for information.
8. The Office of Special Affairs International has a public relations division which subscribes to a “clipping service” and maintains files concerning publicity and articles generated concerning the Church of Scientology.
9. The Office of Special Affairs International further has a legal division which monitors all legal cases involving the Church of Scientology and maintains records relating thereto.
10. In 1984 I attended a meeting of high Church of Scientology officials, including David Miscavige, Starkey, and Marty Rathburn. At this meeting Mr. Miscavige said that something had to be done about “squirrels.” “Squirrels” is a Scientology term for people who have left Scientology and offer an altered version of Scientology technology to the public. I personally heard Mr. Miscavige discuss getting their “field people” to go out and beat up squirrels. (In Scientology, field people are Scientologists not employed specifically by the Church.) These instructions were given to Warren McShane. Plans were discussed as to who would do it.
2
11. In late 1986, I saw a directive concerning planting someone close to Bent Corydon in order to obtain the manuscript of his book that he was writing on L. Ron Hubbard.
12. In 1982, I listened to a tape of L. Ron Hubbard outlining a plan, the purpose of which was to take over control of the Missions so that Scientology could control the Mission money and assets. It would also give Scientology the power to control and dictate activities of any Missions. Prior to this, Missions were generally autonomous.
13. As part of this plan, the purpose of the plan was not to be disclosed to the Mission holders. A sales pitch was created to falsely advise Mission holders that the new articles and by-laws would make their Missions better and more independent.
I declare under penalty of perjury that the above is true and correct to the best of my belief.
MICHAEL J. FLYNN
ROBERT W. JOYCE, P.C.
WILLIAM A. SHERIDAN
MICHAEL A. TABB
August 13, 1986
Federal Bureau of Investigation
John F. Kennedy Building
Government Center
Boston, MA 02203
GA letter to FBI (August 13, 1986)
Re: Gerald Armstrong
Your file no. 47-4569
Dear Sir/Madam:
Enclosed please find a copy of a declaration I wrote regarding my contact with an individual named Mitra Hall who had in October 1985 filed a false complaint against me with the Boston FBI.1
I am aware that Assistant US Attorney Victor Wild, to whom the matter was referred at the time, stated that he would decline prosecution. Nevertheless, I wish to ensure that your file is complete, so I am forwarding this declaration.
1. On July 31 and August 1, 1986 my deposition was taken by attorney Eric Blumenson in the case of Michael Flynn v. Church of Scientology, et al., No. CV 85-4853-R(Mcx). During his questioning of me, Mr. Blumenson revealed that the individual who had filed the complaint against me with the FBI in Boston in October 1985 was a woman named Mitra Hall. Prior to that time I had never heard of Ms. Hall.
2. This morning I had business which brought me at approximately 10:00 a.m. to the MBTA Green Line Auditorium stop on Massachusetts Avenue in Boston. As I was about to enter the station to take the train to work, I was approached by a woman who asked me if I would like to take a “free personality test.” The woman was approximately 30 years old, about five feet four inches in height, dark haired, light brown skinned, and big-chested. She carried in her hand a bunch of cards with the words “personality test’ printed on them. Recalling that the complaint filed against me with the FBI had alleged that I had identified myself as an FBI agent to an individual handing out personality test cards at this same location, I asked the woman her name. She said, “Mitra Hall.”
3. I then asked Ms. Hall if she knew who I was. She said, “No.” I asked her if she had ever seen me before. She said, “No.” I asked her a number of times and in different ways if she was absolutely sure she had never seen me before. She said, “No” to each question. It was clear that Ms. Hall had never seen me before. And I had never seen her before, and had never been to the Auditorium stop nor that part of Boston at any time before today.
4. I identified myself to Ms. Hall then questioned her about the incident which had allegedly occurred last October. She told me that she had been shown several photographs of me by someone, whom she would not name, in the legal department of the Boston Scientology organization, and had identified me as a result of being shown the photos. She stated that she had been accompanied by Scientology attorney Roger Geller when she went to the FBI to file the complaint.
5. I told Ms. Hall that she had filed a false complaint against me, and she stated she was justified “because (I was) trying to destroy (her) church.” She reiterated this charge, and the charge that my attorney Michael Flynn was trying to destroy her church, several times. It was clear from Ms. Hall’s failure to recognize me and from what she said that her complaint against me was false, but that she considered her action in filing the false complaint laudable because I was Scientology’s “enemy.” Following our conversation, which lasted about three minutes, I entered the train station and traveled to my workplace.
I declare under the penalty of perjury under the Laws of the State of California that the foregoing is true and correct.
