- New York Times: Scientology’s Puzzling Journey From Tax Rebel to Tax Exempt (March 9, 1997)
- The Shadowy Story Behind Scientology’s Tax-Exempt Status (March 9, 1997)
- Letter from Heber Jentzsch to James McGovern, Assistant IRS Commissioner (February 24, 1994)
- St. Petersburg Times: IRS examined Scientology dollars, not dogma (October 24, 1993)
- Closing Agreement on Final Determination Covering Specific Matters (October 1, 1993)
- philly.com: Nonprofits Under Scrutiny Million-dollar Salaries. Big Loans. A Hearing Puts Irs On The Hot Seat. (June 16, 1993)
- CSI 1023 Submission: Response to first series of questions [Burke-Feffer submission] (April 24, 1991)
Published: March 9, 1997 1
The full story of the turnabout by the I.R.S. has remained hidden behind taxpayer privacy laws for nearly four years. But an examination by The New York Times found that the exemption followed a series of unusual internal I.R.S. actions that came after an extraordinary campaign orchestrated by Scientology against the agency and people who work there. Among the findings of the review by The Times, based on more than 30 interviews and thousands of pages of public and internal church records, were these:
*Scientology’s lawyers hired private investigators to dig into the private lives of I.R.S. officials and to conduct surveillance operations to uncover potential vulnerabilities, according to interviews and documents. One investigator said he had interviewed tenants in buildings owned by three I.R.S. officials, looking for housing code violations. He also said he had taken documents from an I.R.S. conference and sent them to church officials and created a phony news bureau in Washington to gather information on church critics. The church also financed an organization of I.R.S. whistle-blowers that attacked the agency publicly.
*The decision to negotiate with the church came after Fred T. Goldberg Jr., the Commissioner of the Internal Revenue Service at the time, had an unusual meeting with Mr. Miscavige in 1991. Scientology’s own version of what occurred offers a remarkable account of how the church leader walked into I.R.S. headquarters without an appointment and got in to see Mr. Goldberg, the nation’s top tax official. Mr. Miscavige offered to call a halt to Scientology’s suits against the I.R.S. in exchange for tax exemptions.
After that meeting, Mr. Goldberg created a special committee to negotiate a settlement with Scientology outside normal agency procedures. When the committee determined that all Scientology entities should be exempt from taxes, I.R.S. tax analysts were ordered to ignore the substantive issues in reviewing the decision, according to I.R.S. memorandums and court files.
The I.R.S. refused to disclose any terms of the agreement, including whether the church was required to pay back taxes, contending that it was confidential taxpayer information. The agency has maintained that position in a lengthy court fight, and in rejecting a request for access by The Times under the Freedom of Information Act. But the position is in stark contrast to the agency’s handling of some other church organizations. Both the Jimmy Swaggart Ministries and an affiliate of the Rev. Jerry Falwell were required by the I.R.S. to disclose that they had paid back taxes in settling disputes in recent years.
In interviews, senior Scientology officials and the I.R.S. denied that the church’s aggressive tactics had any effect on the agency’s decision. They said the ruling was based on a two-year inquiry and voluminous documents that showed the church was qualified for the exemptions.
Mr. Goldberg, who left as I.R.S. Commissioner in January 1992 to become an assistant secretary at the Treasury Department, said privacy laws prohibited him from discussing Scientology or his impromptu meeting with Mr. Miscavige.
The meeting was not listed on Mr. Goldberg’s appointment calendar, which was obtained by The Times through the Freedom of Information Act.
The I.R.S. reversal on Scientology was nearly as unprecedented as the long and bitter war between the organizations. Over the years, the I.R.S. had steadfastly refused exemptions to most Scientology entities, and its agents had focused numerous investigations and audits on the church.
Throughout the battle, the agency’s view was supported by the courts. Indeed, just a year before the agency reversal, the United States Claims Court had upheld the I.R.S. denial of an exemption to Scientology’s Church of Spiritual Technology, which had been created to safeguard the writings and lectures of L. Ron Hubbard, the late science fiction writer whose preachings form the church’s scripture. Among the reasons listed by the court for denying the exemption were ”the commercial character of much of Scientology,” its ”virtually incomprehensible financial procedures” and its ”scripturally based hostility to taxation.”
Small wonder that the world of tax lawyers and experts was surprised in October 1993 when the I.R.S. announced that it was issuing 30 exemption letters covering about 150 Scientology churches, missions and corporations. Among them was the Church of Spiritual Technology.
”It was a very surprising decision,” said Lawrence B. Gibbs, the I.R.S. Commissioner from 1986 to 1989 and Mr. Goldberg’s predecessor. ”When you have as much litigation over as much time, with the general uniformity of results that the service had with Scientology, it is surprising to have the ultimate decision be favorable. It was even more surprising that the service made the decision without full disclosure, in light of the prior background.”
While I.R.S. officials insisted that Scientology’s tactics had not affected the decision, some officials acknowledged that ruling against the church would have prolonged a fight that had consumed extensive Government resources and exposed officials to personal lawsuits. At one time, the church and its members had more than 50 suits pending against the I.R.S. and its officials.
”Ultimately the decision was made on a legal basis,” said a senior I.R.S. official who was involved in the case and spoke on the condition that he not be identified. ”I’m not saying Scientology wasn’t taking up a lot of resources, but the decision was made on a legal basis.”
The church’s tactics appear to violate no laws, and its officials and lawyers argued strenuously in a three-hour interview at church offices in Los Angeles last month that the exemptions had been decided solely on the merits. They said the church had been the victim of a campaign of harassment and discrimination by ”rogue agents” within the I.R.S. Once the agency agreed to review the record fairly, they said, it was inevitable that the church would be granted its exemptions. ”The facts speak for themselves,” said Monique E. Yingling, a Washington lawyer who represented the church in the tax case. ”The decision was made based on the information that the church provided in response to the inquiry by the Internal Revenue Service.”
Church officials and lawyers acknowledged that Scientology had used investigators to look into their opponents, including I.R.S. officials, but they said the practice had nothing to do with the I.R.S. decision. ”This is a church organization that has been subjected to more harassment and more attacks certainly than any religion in this century and probably any religion ever, and they have had to perhaps take unusual steps in order to survive,” Ms. Yingling said.
- Frantz, D. (1997, 9 March). Scientology’s Puzzling Journey From Tax Rebel to Tax Exempt. nytimes.com. Retrieved on March 16 2014 from http://www.nytimes.com/1997/03/09/us/scientology-s-puzzling-journey-from-tax-rebel-to-tax-exempt.html. ↩
New York Times 1
By DOUGLAS FRANTZ
On Oct. 8, 1993, 10,000 cheering Scientologists thronged the Los Angeles Sports Arena to celebrate the most important milestone in the church’s recent history: victory in its all-out war against the Internal Revenue Service.
For 25 years, IRS agents had branded Scientology a commercial enterprise and refused to give it the tax exemption granted to churches. The refusals had been upheld in every court. But that night the crowd learned of an astonishing turnaround. The IRS had granted tax exemptions to every Scientology entity in the United States.
“The war is over,” David Miscavige, the church’s leader, declared to tumultuous applause.
The landmark reversal shocked tax experts and saved the church tens of millions of dollars in taxes. More significantly, the decision was an invaluable public relations tool in Scientology’s worldwide campaign for acceptance as a mainstream religion.
On the basis of the IRS ruling, the State Department formally criticized Germany for discriminating against Scientologists. The German government regards the organization as a business, not a tax-exempt religion, the very position maintained for 25 years by the U.S. government.
The full story of the turnabout by the IRS has remained hidden behind taxpayer privacy laws for nearly four years. But an examination by The New York Times found that the exemption followed a series of unusual internal IRS actions that came after an extraordinary campaign orchestrated by Scientology against the agency and people who work there. Among the findings of the review by The New York Times, based on more than 30 interviews and thousands of pages of public and internal church records, were these:
- Scientology’s lawyers hired private investigators to dig into the private lives of IRS officials and to conduct surveillance operations to uncover potential vulnerabilities, according to interviews and documents. One investigator said he had interviewed tenants in buildings owned by three IRS officials, looking for housing code violations. He also said he had taken documents from an IRS conference and sent them to church officials and created a phony news bureau in Washington to gather information on church critics. The church also financed an organization of IRS whistle-blowers that attacked the agency publicly.
- The decision to negotiate with the church came after Fred T. Goldberg Jr., the commissioner of the Internal Revenue Service at the time, had an unusual meeting with Miscavige in 1991. Scientology’s own version of what occurred offers a remarkable account of how the church leader walked into IRS headquarters without an appointment and got in to see Goldberg, the nation’s top tax official. Miscavige offered to call a halt to Scientology’s suits against the IRS in exchange for tax exemptions.
- After that meeting, Goldberg created a special committee to negotiate a settlement with Scientology outside normal agency procedures. When the committee determined that all Scientology entities should be exempt from taxes, IRS tax analysts were ordered to ignore the substantive issues in reviewing the decision, according to IRS memorandums and court files.
- The IRS refused to disclose any terms of the agreement, including whether the church was required to pay back taxes, contending that it was confidential taxpayer information. The agency has maintained that position in a lengthy court fight, and in rejecting a request for access by The New York Times under the Freedom of Information Act. But the position is in stark contrast to the agency’s handling of some other church organizations. Both the Jimmy Swaggart Ministries and an affiliate of the Rev. Jerry Falwell were required by the IRS to disclose that they had paid back taxes in settling disputes in recent years.
In interviews, senior Scientology officials and the IRS denied that the church’s aggressive tactics had any effect on the agency’s decision.
They said the ruling was based on a two-year inquiry and voluminous documents that showed the church was qualified for the exemptions.
Goldberg, who left as IRS commissioner in January 1992 to become an assistant secretary at the Treasury Department, said privacy laws prohibited him from discussing Scientology or his impromptu meeting with Miscavige.
The meeting was not listed on Goldberg’s appointment calendar, which was obtained by The New York Times through the Freedom of Information Act.
The IRS reversal on Scientology was nearly as unprecedented as the long and bitter war between the organizations. Over the years, the IRS had steadfastly refused exemptions to most Scientology entities, and its agents had targeted the church for numerous investigations and audits.
Throughout the battle, the agency’s view was supported by the courts. Indeed, just a year before the agency reversal, the U.S. Claims Court had upheld the IRS denial of an exemption to Scientology’s Church of Spiritual Technology, which had been created to safeguard the writings and lectures of L. Ron Hubbard, the late science fiction writer whose preachings form the church’s scripture.
Among the reasons listed by the court for denying the exemption were “the commercial character of much of Scientology,” its “virtually incomprehensible financial procedures” and its “scripturally based hostility to taxation.”
Small wonder that the world of tax lawyers and experts was surprised in October 1993 when the IRS announced that it was issuing 30 exemption letters covering about 150 Scientology churches, missions and corporations. Among them was the Church of Spiritual Technology.
“It was a very surprising decision,” said Lawrence B. Gibbs, the IRS commissioner from 1986 to 1989 and Goldberg’s predecessor. “When you have as much litigation over as much time, with the general uniformity of results that the service had with Scientology, it is surprising to have the ultimate decision be favorable. It was even more surprising that the service made the decision without full disclosure, in light of the prior background.”
While IRS officials insisted that Scientology’s tactics did not affect the decision, some officials acknowledged that ruling against the church would have prolonged a fight that had consumed extensive government resources and exposed individual officials to personal lawsuits. At one time, the church and its members had more than 50 suits pending against the IRS and its officials.
“Ultimately the decision was made on a legal basis,” said a senior IRS official who was involved in the case and spoke on the condition that he not be identified. “I’m not saying Scientology wasn’t taking up a lot of resources, but the decision was made on a legal basis.”
The church’s tactics appeared to violate no laws, and its officials and lawyers argued strenuously in a three-hour interview at church offices in Los Angeles last month that the exemptions were decided solely on the merits. They said the church had been the victim of a campaign of harassment and discrimination by “rogue agents” within the IRS. Once the agency agreed to review the record fairly, they said, it was inevitable that the church would be granted its exemptions.
“The facts speak for themselves,” said Monique E. Yingling, a Washington lawyer who represented the church in the tax case. “The decision was made based on the information that the church provided in response to the inquiry by the Internal Revenue Service.”
Church officials and lawyers acknowledged that Scientology had used private investigators to look into their opponents, including IRS officials, but they said the practice had nothing to do with the IRS decision.
“This is a church organization that has been subjected to more harassment and more attacks certainly than any religion in this century and probably any religion ever, and they have had to perhaps take unusual steps in order to survive,” Ms. Yingling said.
THE ORIGINS: AN EXPANDING CHURCH ON A COLLISION COURSE
Since its founding in 1950, Scientology has grown into a worldwide movement that boasts 8 million members, although defectors say the actual number is much smaller. The church, which has vast real estate holdings around the world and operates a yacht based in the Caribbean, describes itself as the only major new religion to have emerged in the 20th century.
Its founder, Hubbard, asserted that people are immortal spirits who have lived through many lifetimes. In Scientology teachings, Hubbard described humans as clusters of spirits that were trapped in ice and banished to Earth 75 million years ago by Xenu, the ruler of the 26-planet Galactic Confederation.
Scientology describes its goal as “a civilization without insanity, without criminals and without war, where the able can prosper and honest beings can have rights, and where Man is free to rise to greater heights.” To reach those heights, Scientologists believe, each individual must be “cleared” of problems and afflictions through a series of counseling sessions known as “auditing.” The sessions are performed by a trained auditor assisted by a device similar to a lie detector, known as an E-meter.
Although Scientology’s complicated finances make a total estimate difficult, records on file at the IRS indicate that in the early 1990s the church was earning about $300 million a year from auditing fees, the sale of Scientology literature and recordings, management services and the franchising of its philosophy. Church officials said those figures were higher than actual earnings.
The original mother church, the Church of Scientology of California, was established by Hubbard in Los Angeles in 1954. Three years later, it was recognized as tax exempt by the IRS. But in 1967, the agency stripped the church of its exemption, and a fierce struggle broke out between the agency and the church.
In its revocation letter, the agency said that Scientology’s activities were commercial and that it was being operated for the benefit of Hubbard, a view supported by the courts several times in the ensuing 25 years. The church ignored the action, which it deemed unlawful, and withheld taxes.
The IRS put Scientology on its hit list. Minutes of IRS meetings indicate that some agents engaged in a campaign to shut down Scientology, an effort that church officials cite as evidence of bias. Some of the tactics led to rebukes by judges, including a 1990 ruling in Boston that criticized the IRS for abusive practices in seeking access to church records.
Scientology retaliated. In 1973 the church embarked on a program code named Snow White. In a document labeled “secret,” Hubbard outlined a strategy to root out all “false and secret files” held by governments around the world regarding Scientology.
“Attack is necessary to an effective defense,” Hubbard wrote.
Snow White soon turned sinister. Under the supervision of Hubbard’s third wife, Mary Sue, Scientologists infiltrated the Department of Justice and the IRS to uncover information on Hubbard. They broke into offices at night and copied mountains of documents. At one point, an electronic bugging device was hidden inside an IRS conference room the day before a meeting about Scientology.
Critics say those actions fell under a church doctrine that Hubbard had called the Fair Game policy. Hubbard wrote that church enemies may “be deprived of property or injured by any means by any Scientologist without any discipline of the Scientologist. May be tricked, sued or lied to or destroyed.”
The conspiracy was uncovered in 1977, and Mrs. Hubbard and 10 others were eventually sentenced to prison. Hubbard was named an unindicted co-conspirator because investigators could not link him to the crimes.
The church promised to change its ways. Scientologists said members who broke the law were purged, including Mrs. Hubbard, and the church was restructured to protect against a recurrence. The Fair Game policy, they said, has been misinterpreted by courts and critics.
“There is nothing like that,” said Elliot J. Abelson, the church’s general counsel. “It doesn’t happen.”
THE COVERT WAR: WHISTLE-BLOWERS AND ‘VULNERABILITIES’
But interviews and an examination of court files across the country show that after the criminal conspiracy was broken up, the church’s battle against the IRS continued on other fronts. When Hubbard died in January 1986, his opposition to taxes lived on among the new generation of leaders, including Miscavige, a second-generation Scientologist.
Part of the battle was public. A leading role was played by the National Coalition of IRS Whistle-Blowers, which Scientology created and financed for nearly a decade.
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.
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 investigators. While there have been previous articles about the church’s use of private investigators, the full extent of its effort against the IRS is only now coming to light through interviews and records provided to The New York Times.
Octavio Pena, a private investigator in Fort Lee, N.J., achieved a measure of reknown in the late 1980s when he helped expose problems within the Internal Revenue Service while working on a case for Jordache Enterprises, the jeans manufacturer.
In the summer of 1989, Pena disclosed in an interview, a man who identified himself as Ben Shaw came to his office. Shaw, who said he was a Scientologist, explained that the church was concerned about IRS corruption and would pay $1 million for Pena to investigate IRS officials, Pena said.
“I had had an early experience with the Scientologists, and I told him that I didn’t feel comfortable with him, even though he was willing to pay me $1 million,” Pena said.
Scientology officials acknowledged that Shaw worked for the church at the time, but they scoffed at the notion that he had tried to hire Pena. “The Martians were offered $2 million; that’s our answer,” said Moxon, whose firm often hired private investigators for the church.
Michael L. Shomers, another private investigator, said he shared none of Pena’s qualms, at least initially.
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.
In one instance, information that Shomers said he had gathered at an IRS conference in the Pocono Mountains was turned over to an associate of Jack Anderson, the columnist, and appeared in one of Anderson’s columns criticizing top IRS managers for high living at taxpayer expense.
Shomers said he had received his instructions in meetings with a man who identified himself as Jake Thorn and said he was connected with the church. Shomers said he believed the name was a pseudonym.
Shomers said he had looked into several apartment buildings in Pennsylvania owned by three IRS officials. He obtained public files to determine whether the buildings had violated housing codes, he said, and interviewed residents looking for complaints, but found none.
In July 1991, Shomers said, he posed as a member of the IRS whistle-blowers coalition and worked with a producer and cameraman from NBC-TV to get information about a conference for senior IRS officials in Walnut Creek, Calif. The producer said that she recalled Shomers as a representative of the whistle-blowers, but knew nothing of his connection to Scientology. The segment never ran.
At one point, Shomers said, he slipped into a meeting room at the Embassy Suites, where the conference was held, and took a stack of internal IRS documents. He said he mailed the material to an address provided by his church contact.
Krywucki acknowledged that he had worked for Scientology’s lawyers in 1990 and 1991, though he declined to discuss what he did. He said he would ask the lawyers for permission to speak about the inquiry, but he failed to return telephone calls after that conversation.
It is impossible to verify all of Shomers’ statements or determine whether his actions were based on specific instructions from church representatives. He said he had often been paid in cash and sometimes by checks from Bowles & Moxon, a Los Angeles law firm that served as the church’s lead counsel. He said he had not retained any of the paychecks.
Shomers provided The New York Times with copies of records that he said he had obtained for the church as well as copies of hotel receipts showing that he had stayed at hotels where the IRS held three conferences, in Pennsylvania, West Virginia and California. He also provided copies of business cards, with fake names, that he said had been created for the phony news bureau in Washington and copies of photographs taken as part of his surveillance work.
One of the IRS officials investigated by Shomers recalled that a private investigator had been snooping around properties he managed on behalf of himself and two other mid-level agency officials.
The official, Arthur C. Scholz, who has since left the IRS, said he was alerted by tenants that a man who identified himself as a private investigator had questioned tenants about him and the other landlords. He said the tenants had not recalled the man’s name but had noted that he was driving a car with Maryland license plates.
“He went to the courthouse and found the properties, and then went out banging on doors of these tenants and made a number of allegations dealing with things that were totally bull,” said Scholz, who had no involvement with the IRS review of Scientology and was at a loss to explain why the church would have been interested in him. “I notified the local police about it.”
Shomers, who has since left the private-investigation business, said he was willing to describe his work for the church because he had come to distrust Scientology and because of a financial dispute with Krywucki.
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.
“The IRS uses investigators, too,” said a church lawyer, Gerald A. Feffer, a former deputy assistant attorney general now with Williams & Connolly, one of Washington’s most influential law firms. “They’re called CID agents” — for Criminal Investigation Division — “and the CID agents put this church under intense scrutiny for years with a mission to destroy the church.”
A blunt assessment of Scientology’s victorious strategy against the IRS was contained in a lengthy 1994 article in International Scientology News, an internally distributed magazine. The article said:
“This public exposure of criminals within the IRS had the desired effect. The Church of Scientology became known across the country as the only group willing to take on the IRS.”
“And the IRS knew it,” the article continued. “It became obvious to them that we weren’t about to fold up or fade away. Our attack was impinging on their resources in a major way, and our exposes of their crimes were beginning to have serious political reverberations. It was becoming a costly war of attrition, with no clear-cut winner in sight.”
THE UNUSUAL PEACE: AFTER A MEETING, A 180-DEGREE TURN
Scientology made the initial gesture toward a cease-fire when Miscavige, the church leader, paid an unscheduled visit to the IRS commissioner, Goldberg.
The first full account of that meeting and the events that followed inside the IRS was assembled from interviews, Scientology’s own internal account, IRS documents and records in a pending suit brought by Tax Analysts, a nonprofit trade publisher, seeking the release of IRS agreements with Scientology and other tax-exempt organizations.
Feffer, a church lawyer since 1984, said he approached officials at the Justice Department and the IRS in 1991 with an offer to sit down and negotiate an end to the dispute.
The church’s version of what followed is quite remarkable. Miscavige and Marty Rathbun, another church official, were walking past the IRS building in Washington with a few hours to spare one afternoon in late October 1991 when they decided to talk to Goldberg.
After signing the visitors’ log at the imposing building on Constitution Avenue, the two men asked to see the commissioner. They told the security guard that they did not have an appointment but were certain Goldberg would want to see them. And, according to the church account, he did.
Goldberg said he could not discuss the meeting, although a former senior official confirmed that it occurred. An IRS spokesman said it would be unusual for someone to meet with the commissioner without an appointment.
Miscavige does not grant interviews, church officials said, but Rathbun 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.
“Let’s resolve everything,” Rathbun recalled saying. “This is insane. It’s reached insane levels.”
Goldberg’s response was also out of the ordinary. He created a special five-member working group to resolve the dispute, bypassing the agency’s exempt organizations division, which normally handles those matters. Howard M. Schoenfeld, the IRS official picked as the committee’s chairman in 1991, said later in a deposition in the Tax Analysts case that he recalled only one similar committee in 30 years at the agency.
The IRS negotiators and Scientology’s tax lawyers held numerous meetings over nearly two years. An IRS official who participated, and who spoke about the meetings on condition that his name not be used, described the sessions as occasionally rancorous, but he said the general tone was far friendlier than over the preceding years.
There are indications that the early momentum was toward resolution. In a letter to Ms. Yingling on Jan. 19, 1992, John E. Burke, the assistant commissioner for exempt organizations, brushed aside what could have been a stumbling block. Ms. Yingling had apparently objected to the potential public disclosure of information that the church was providing to the IRS.
Burke said he did not want the dispute to delay the talks, and he committed the IRS to allowing only a portion of the information to become public. He said the only hitch would come “in the event that our discussions break down, an eventuality that I have no reason to believe will occur.”
An IRS official involved in the talks said it was not unusual for the agency to negotiate with a taxpayer over what is made public in an agreement. By agreeing at the outset that information could be withheld, however, the IRS seemed to relinquish a big bargaining chip.
Paul Streckfus, 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,” Streckfus said.
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.
Ms. Yingling, the church’s tax lawyer, said the Claims Court ruling ignored the facts and was filled with gratuitous comments. She said the IRS negotiators were fairer in considering the evidence.
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. It fills part of a large bookcase in the IRS reading room in Washington.
The central issues are discussed in a series of lengthy answers by Scientology’s lawyers to questions from the IRS. The church provided extensive information on its finances and operational structure.
The senior IRS official involved in the negotiations, who asked not to be identified, said the church satisfied the agency in the three critical areas. He said the committee was persuaded that those involved in the Snow White crimes had been purged, that church money was devoted to tax-exempt purposes and that, with Hubbard’s death, no one was getting rich from Scientology.
Ms. Yingling argued that nothing substantive had changed. She said the church had been qualified for tax exemption for years, but biased elements within the IRS had stood in its way.
“There were no changes in the operations or activities of the church,” she said. “What came about was finally that they looked at all the information and saw that the church qualified for exemption, and they were satisfied.”
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.
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.
Schoenfeld, the negotiations chairman, ordered the two tax analysts assigned to the review not to consider any substantive matters, according to IRS memorandums and records in the Tax Analysts case. Those issues, Schoenfeld informed them, had been resolved.
Both analysts, Donna Moore and Terrell M. Berkovsky, wrote memorandums specifying that they had been instructed not to address issues like whether the church was engaged in too much commercial activity or whether its activities provided undue private benefit to its leaders.
Schoenfeld, who has since left the IRS, said he could not discuss the case. But the senior IRS official involved in the talks said there was nothing sinister about the instructions because those matters had been decided by the negotiating committee. He acknowledged, however, that this was not the typical procedure.
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.
Tax lawyers said the IRS could have required the church to disclose terms of the agreement, which it has done in the past. In 1991, the IRS required the Jimmy Swaggart Ministries to disclose that the group had paid $171,000 in back taxes for violations. In 1993, just a few months before the Scientology agreement, the IRS required the Old Time Gospel Hour, a group affiliated with the Rev. Jerry Falwell, to publicize its payment of $50,000 in back taxes.
“The IRS actually specified which media outlets we were to notify and approved the release,” said Mark DeMoss, a spokesman for Falwell. “When nobody picked it up, they put out their own press release.”
William J. Lehrfeld, who represents Tax Analysts in its suit to make the Scientology agreement public, said, “You and I, as taxpayers, are subsidizing these people, and we should see this information.”
THE AFTERMATH: A FORMER ENEMY BECOMES AN ALLY
Five days before the official announcement, Miscavige went before the Scientology gathering in Los Angeles and declared victory. In a two-hour speech, according to the account in International Scientology News, Miscavige described years of attacks against Hubbard and Scientology by the government.
“No other group in the history of this country has ever been subject to the assault I have briefed you on tonight,” he said, calling it “the war to end all wars.”
As part of the settlement, Miscavige said, the IRS had agreed to distribute a fact sheet describing Scientology and Hubbard. “It is very complete and very accurate,” Miscavige said. “Now, how do I know? We wrote it! And the IRS will be sending it out to every government in the world.”
Feffer, Ms. Yingling and Thomas C. Spring, another of the church’s tax lawyers, appeared in formal attire on stage that night and received Waterford crystal trophies in recognition of their efforts.
Miscavige called the agreement a peace treaty that would mark the biggest expansion in Scientology history.
The church immediately began citing the IRS decision in its efforts to win acceptance from other governments and to silence critics. But the biggest public relations benefit may have come from the U.S. government itself.
Four months after the exemptions were granted, the State Department released its influential human rights report for 1993, a litany of the countries that abuse their citizens. For the first time, the report contained a paragraph noting that Scientologists had complained of harassment and discrimination in Germany. The matter was mentioned briefly in the 1994 and 1995 reports, too.
Throughout those years, the dispute between Scientologists and the German government escalated. In an intense publicity campaign that included advertisements in this newspaper, the church said that businesses owned by Scientologists were boycotted and that its members were excluded from political parties and denied access to public schools. The church asserted that the German actions paralleled early Nazi persecution of Jews.
The German government responded that Scientology was not a church worthy of tax exemption, but a commercial enterprise — the very position the IRS had maintained in its 25-year war against the church. German officials said equating the treatment of Scientologists with that of Jews under the Nazi regime was a distortion and an insult to victims of the Holocaust, a view supported by some Jewish leaders in Germany.
The dispute turned into a diplomatic ruckus in January when the State Department released its 1996 human rights report, with an expanded section on Scientology that said German scrutiny of the religion had increased. Artists had been prevented from performing because of their membership in the church and the youth wing of the governing Christian Democratic Union had urged a boycott of the film “Mission: Impossible” because its star, Tom Cruise, is a prominent Scientologist, the State Department said.
German officials were angered by the criticism, and Foreign Minister Klaus Kinkel raised the matter with Secretary of State Madeleine K. Albright when she was in Bonn on Feb. 18. Ms. Albright told him that the issue was a subject for bilateral discussions, but she said she found claims by Scientologists that they are the victims of Nazi-style persecution “distasteful.”
Nicholas Burns, the State Department spokesman, said that, despite the belief that Scientologists had gone too far in drawing comparisons to persecution of Jews, the department had felt compelled to expand on the church’s troubles with the Germans in its latest human rights report.
“The Germans are quite adamant, based on their own history, that these are the kinds of groups that ought to be outlawed,” Burns said. “However, for our purposes, we classify Scientology as a religion because they were granted tax-exempt status by the American government.”
An Ultra-Aggressive Use of Investigators and the Courts
By DOUGLAS FRANTZ
For years, Scientology has gone to great lengths to defend itself from critics. Often its defense has involved private investigators working for its lawyers. While the use of private investigators is common in the legal profession, some instances involving the church have been unusual.
Scientology officials said that the investigators operated within the law and that the tactics were necessary to counter attacks made over the years by Internal Revenue Service agents and the press.
“When people stop spreading lies about them and stop printing false allegations about them in newspapers, the church will stop using private investigators,” said Monique E. Yingling, a church lawyer.
In 1986 the Federal Court of Appeals in Boston said evidence in an extortion case indicated that Scientology investigators had induced witnesses to lie. It identified one investigator as Eugene M. Ingram.
Eight years later, Ingram was charged with impersonating a police officer in seeking information about a sheriff in Tampa, Fla., while working as a church investigator. He and a Scientology employee flashed badges and told a woman that they were police detectives before questioning her about possible links between a county sheriff and what was said to be a prostitution ring, police records say.
Court officials said a warrant for Ingram’s arrest was still outstanding.
Ingram had been dismissed from the Los Angeles Police Department in 1981 after accusations that he was involved in running a prostitution ring and had provided information to a drug dealer. He was acquitted of criminal charges in that case.
Elliot J. Abelson, the church’s general counsel, said he had used Ingram often as an investigator and had the highest regard for him. He said the Tampa case was phony.
Richard Behar, an investigative reporter, incurred Scientology’s wrath when he wrote a cover article about the church in Time magazine in 1991. The article called the church “a hugely profitable global racket that survives by intimidating members and critics in a Mafia-like manner.”
The church and a member sued Time and Behar for libel, and the company spent more than $7 million defending the cases. The church’s suit was dismissed last year by a Federal District Court judge, an action being appealed by Scientology. The individual’s suit was settled with a corrective paragraph but no money.
Behar contends in a countersuit that even before the article ran, church investigators questioned his acquaintances about his health and whether he had had tax or drug problems. Behar said that after the article ran, he had been followed by Scientology agents and had been so concerned he had hired bodyguards.
In 1992, Judge Ronald Swearinger of Los Angeles County Superior Court told The American Lawyer magazine that he believed Scientologists had slashed his car tires and drowned his collie while he was presiding over a suit against the church. The church denied the 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 the case. In a court statement, 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.”
Kendrick L. Moxon, the church’s lawyer in the case, said he had tried to question the former clerk about accusations that there was a framed Time magazine cover about Scientology in the judge’s chambers. He said that the former clerk had refused to talk to him and that his subpoena for her testimony had been quashed.
Scientology’s tactics in court have also drawn judicial rebukes. Last year, the California Court of Appeal accused Scientology of using “the litigation process to bludgeon the opponent into submission.” The Federal Court of Appeals in San Francisco said last year that Scientology had played “fast and loose with the judicial system” and levied $2.9 million in sanctions against the church.
By aggressively pursuing its opponents in court, the church seems to heed the preaching of L. Ron Hubbard, its founder, who once wrote: “The purpose of the suit is to harass and discourage rather than win. The law can be used very easily to harass, and enough harassment on somebody who is simply on the thin edge anyway … will generally be sufficient to cause his professional decrease. If possible, of course, ruin him utterly.”
One focus of suits by Scientologists was the Cult Awareness Network, a nonprofit organization dedicated to countering religious groups it perceived as dangerous.
Scientology has long regarded the network, known as CAN, as an opponent of religious freedom and a hate group. Church officials said the network used “deprogrammers” to kidnap people in an effort to persuade them to leave small religious groups. Deprogrammers affiliated with the network have been convicted of crimes in connection with efforts to force people to leave religious organizations.
Beginning in 1992, Scientologists filed 40 to 50 suits against the network and its officers, contending that they discriminated by refusing to allow Scientologists to attend conventions or join chapters. Some Scientologists prevailed in court.
Moxon, who represented many Scientologists, said the suits had been intended to address network discrimination against people who wanted to reform it.
But Daniel A. Leipold, who represented the network, said during depositions in some of the suits that the actions had been part of a campaign by Scientology to destroy the network.
Last year, the network declared bankruptcy after a $1.8 million judgment against it in a suit brought by a young man who had been a member of a Pentecostal group. The jury found that the man had been forcibly detained by a deprogrammer. Moxon, who represented the man, said that he had taken the case as a religious freedom matter and that his expenses had been paid by the Pentecostal group.
After the network filed for bankruptcy, its name, logo and telephone were bought by a group represented by a lawyer who is a Scientologist. While the church said it had no connection with the purchasers, a brochure mailed by the new Cult Awareness Network in January was a glowing description of Scientology as a means to “increase happiness and improve conditions for oneself and for others.”
- Retrieved on August 8, 2014 from http://www.cs.cmu.edu/~dst/Cowen/essays/nytimes.html. ↩
Church of Scientology International
Office of the President1
February 24, 1994
Assistant Commissioner (EP/EO)
[Employee Plans/Exempt Organization]
Internal Revenue Service
1111 Constitution Ave., N.W.
Washington D.C. 20224
Re: F.A.C.T.Net, Inc.
Information has come to my attention concerning an organization which is either in the process of seeking tax exemption under section 501(c) (3) of the Internal Revenue Code, or shortly will be seeking such exemption. As the organization is located in Golden, Colorado, its application should have been, or shortly will be, filed with the Dallas IRS District.
This organization, “Fight Against Coercive Tactics Network” or “F.A.C.T.Net, Inc.” (“FACTNET”), puts up a thin veneer of charitable and educational purposes to disguise its true purpose: to serve as a vehicle for certain individuals with a fanatical hatred of the Scientology religion to carry out a malicious smear campaign against members of the Scientology religion. This organization i5 closely affiliated with the Cult Awareness Network (“CAN”) which I have written to you about previously.
The purpose of this letter is to provide you with information which must be taken into consideration when reviewing any application by FACTNET for tax exemption.
FACTNET was originally incorporated an .July 7, 1993 as “FACT,” and changed its name to “FACTNET” on December 14, 1993. Its articles of incorporation state that the corporation “is organized exclusively for charitable, educational and scientific purposes ….” (Exhibit A) The articles also state that “the corporation shall not carry on any other activities not permitted to be carried on (a) by a corporation exempt from federal income tax under section 501(c) (3) of the Internal Revenue Code …. ” However, FACTNET’s true activities bear no relationship to any of
February 24, 1994
the purposes permitted under section 501(c) (3). FACTNET was founded by two former Scientologists, Gerry Armstrong and Larry Wollersheim, who have been zealots against the Scientology religion for many years. Their actions were described in the Church’s November 1992 submission to former Assistant Commissioner EP/EO, John Burke. (See pages 10-36 through 10-47 on Armstrong; pages 10-49 through 10-51 on Wollersheim.) Armstrong was earlier involved in a scheme to forge documents and get them planted on Church premises as part of a plot to overthrow Church management. More recently, he has been quoted in the press expressing his opposition to the use of currency as the basis for the economy, as the self-proclaimed founder of the “Organization of United Renunciants.” (Exhibit B) Wollersheim is similarly delusional. He once accused the IRS of being in league with other federal agencies which are running Scientology as an intelligence experiment, and which would temporarily “rough up” the Church to help maintain its “cover.” (Exhibit C)
Armstrong’s and Wollersheim’s conspiracy to attack the Scientology religion through FACTNET is a direct violation of a preliminary injunction entered on May 28, 1992 which enjoins “Gerald Armstrong, his agents, and persons acting in concert or conspiracy with him” from, among other things:
“Voluntarily assisting any person (not a governmental organ or entity) intending to make, intending to press, intending to arbitrate, or intending to litigate a claim against [various organizations and individuals affiliated with the Scientology religion as specified in the preliminary injunction].
“Voluntarily assisting any person (not a governmental organ or entity) arbitrating or litigating a claim against [various organizations and individuals affiliated with the Scientology religion as specified in the preliminary injunction].”
I am attaching a copy of a brochure published by FACTNET which was mailed broadly to members of the Church. One of the avowed purposes of this mailing is “to assist ongoing civil or criminal litigation…” which places the mailing squarely within the terms of the preliminary injunction. Indeed, a version of this brochure has already been filed in and has been used as a central part of the defense in litigation in which Church of Scientology International is a party. Moreover, Larry
February 24, 1994
Wollersheim has been in constant litigation with the Church since 1979. There is no doubt that Wollersheim’s significant financial interest in his own litigation against the Church is a major, if not the primary, motivating factor behind his attacks on the Church through FACTNET.
A reading of the entire FACTNET mailing reveals that it is a thinly disguised attempt to foment litigation against the Church of Scientology with a plethora of false, sensational allegations.
FACTNET describes itself in this mailing as a ” nonaligned, nonprofit, research and educational public service consisting of an electronic lending library, electronic mail service, and electronic news transfer service.” (Exhibit D) Yet the text of this brochure is rife with false and malicious claims, revealing the true purposes and activities of the organization. As I advised you in earlier correspondence regarding CAN, that organization’s original application for tax exemption was denied because the Service found that CAN was not an “educational” organization because it did not provide a full and fair exposition of the facts. Following its review of CAN’s literature the Service stated .”a significant portion of your viewpoints are not supported by relevant facts … and disparaging statements about organizations and individuals … were based on unsupported opinions or incomplete facts. Your publications did not present a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion.” FACTNET’s literature presents the same picture. FACTNET is not an “educational” organization. Its literature does not present the fair exposition of the facts required by 501(c) (3).
For example, it contains the absurd contention that in order to obtain tax exemption for the Churches of Scientology, Mr. David Miscavige had to admit to criminal conduct on the part of Mr. L. Ron Hubbard. You know for yourself that nothing could be further from the truth. That’s just the beginning.
The mailing purports to solicit information concerning a list of 112 individuals who were allegedly murdered, ordered to commit suicide, had nervous breakdowns or threatened suicide as a result of their affiliation with the Church of Scientology — an unbelievable pack of lies which could not be further from the truth. Scientologists have never been associated with murder and are well known for a very anti-suicidal stance.
The fact of mailing this document, in and of itself, is
February 24, 1994
outrageous, clearly designed to upset and cause suffering to members of the Scientology religion on a broad scale. It is as if an arm of the Ku Klux Klan culled the obituary notices for Jewish names and then sent a mailing to synagogue members asking if they had any information regarding the mysterious deaths of those people, claiming their deaths resulted from their affiliation with the Jewish faith. This mailing is as charitable and educational as spray-painting swastikas on synagogue walls.
Maligning a religion by listing the alleged deaths of a number of its members over a 40-year period is grotesque. Moreover, of the 112 items on the list, 60 do not describe deaths at all. Six of the people listed are listed twice and 20 of the listings do not even identify the person allegedly involved by name, using instead such statements as “an individual (name unknown)” or “a man in LA.” At least seven of the items on their face indicate death by natural causes.
A closer examination of the allegations in this brochure shows that they consist of the worst form of attack by falsehood and innuendo. FACTNET’s allegations are designed to hold the Church, its leaders and its parishioners in the worst possible light and have forced the Church to consume a tremendous amount of time and energy in an effort to discover the truth behind them in order to defend ourselves. This information is precisely the kind of “disparaging statements about organizations and individuals … based on unsupported opinions or incomplete facts” that led the Service to initially deny exemption to CAN. The following are a few examples:
a. Exemplifying the unsupportable and malicious nature of FACTNET’s assault on the Church and on senior Scientologists is the implication of wrongdoing by Mr. Miscavige in the death of his mother-in-law, Mary Florence Barnett. This is a pernicious effort to exploit a family tragedy and shows that FACTNET’s principals have absolutely no sense of decency. As reflected in the medical examiner’s records and sworn testimony (which FACTNET has), Ms. Barnett was despondent after failing to fully recover from a brain operation when she took her own life. There was no argument between them as claimed. In fact, Mr. Miscavige had not been in communication with his mother-in-law for some years prior to her tragic death, his only involvement in the matter was consoling his grief-stricken wife.
February 24, 1994
b. Under the heading of “other deaths while an individual was associated with Scientology” is the name John Peterson. Mr. Peterson was an attorney for the Church who died of a heart attack while at his home. Apparently the only reason Mr. Peterson is on this list is because he represented the Church. Yet, FACTNET has placed his name in the context of a “chilling story,” “coverups” and “calamities.”
c. One falsehood which has long since been discredited is the fabricated claim by one Steven Fishman that he was ordered to commit suicide by the Church. He made such a claim following his arrest on charges of mail fraud to which he ultimately pleaded guilty and served a federal prison term. While FACTNET reports this suicide claim as factual, Fishman was convicted on a charge of obstruction of justice for perpetrating this very lie, a crime for which he was also sentenced to prison, along with the underlying mail fraud charges.
d. And on a personal level, the FACTNET allegation that is particularly offensive to me is the false charge that my wife, Yvonne Jentzsch, was denied medical treatment and was allegedly induced to commit suicide due to problems she was supposedly having with me and with Mr: Hubbard. There is not one word of truth to these claims. My wife was suddenly stricken with what appeared to be a stroke. After performing several tests at hospitals on both coasts, it was finally discovered that she was suffering from a form of cancer, which at the time of her death in Morton Plant Hospital in Florida, was medically untreatable. I stayed by her side to the very end and she died in my arms. She was loved by a great many Scientologists, including and especially by Mr. Hubbard. FACTNET’s implications concerning the circumstances of her death are a perfidious and vile assault on her good name, mine and Mr. Hubbard’s.
The above are only a few examples. The rest of the brochure is similarly rife with lies. The Church only became aware of the existence of FACTNET and its malicious campaign of slander and innuendo when several Church members reported receiving this brochure in the mail and it became necessary to respond to these scurrilous accusations. This involved having to search out the individuals named in the brochure, some of whom were never even Scientologists and some of whom were impossible to identify from
February 24, 1994
the limited information provided by FACTNET. The results of this search so far prove that the brochure is a compendium of false allegations, generalities and innuendo. The tactic of calling it a.”questionnaire” which is part of an “investigation” is a transparent attempt to conceal its true purpose — to defame and malign the Scientology religion and its members and spread turmoil and upset among Church membership.
Needless to say, individuals who were named in this list whom we have contacted were appalled to learn that this false and malicious information was being circulated widely without their knowledge or consent. The purpose of distributing such a vicious and libellous mailing could not possibly be “educational” or “charitable.” It is nothing more than hate propaganda.
The motives of FACTNET also show through the veneer in the kind of information being solicited from subscribers. For example: “How might we locate or contact the parents or non-Scientology families of the senior Scn executives?” What other purpose could it have for soliciting this information other than to terrorize and harass the families of Church leaders?
FACTNET attempts to cloak its hate-mongering by using pseudo-scientific terminology such as “coercive persuasion.” Such “theories,” supported by Margaret Singer and others, have been utterly rejected by the courts (U.S. v. Fishman, 743 F.Supp. 713, 717 (N.D.Cal 1990)), and have been disclaimed by the American Psychological Association and the American Sociological Association.
The primary purpose of FACTNET is to attack the Scientology religion and the Church’s members. Any doubt of this fact is put to rest with a letter dated January 20, 1994 from Lawrence Wollersheim on behalf of the organization to the County Property Tax Department in Clearwater, Florida. Based on the IRS’s recognition of tax-exempt status to Church of Scientology Flag Service Organization, settlement was recently reached with the county property tax officials regarding that Church’s qualification for property tax exemption. Having gotten wind of this favorable settlement, Wollersheim wrote to the county officials imploring them not to go through with the settlement and stating that FACTNET “shortly … will have all 12,000 pages of the IRS ruling scanned into our searchable computer data base” for the purpose of using former members of the Church “and possibly several former high ranking IRS officials” to re-examine “this data base for fraud in Scientology’s application.”
February 24, 1994
The county officials were obviously not too impressed with Wollersheim’s offer, as the settlement is now complete with the Church recognized as exempt with respect to most of its properties.
And the latest turn of events, an attempted extortion of the Church by Los Angeles attorney Graham Berry, claiming to represent Wollersheim and his cronies, proves the real intent of this scam. Berry demanded tens of millions of dollars from the Church to prevent further dissemination of this material in civil litigation and to government agencies, including the IRS, while admitting it was intended solely to create “PR problems” and to harass the Church into paying money.
As a front group for CAN, another of FACTNET’s nefarious purposes is to serve as a referral service for deprogrammers. “Deprogramming” is a process in which bigoted or mercenary individuals use force and coercion to dissuade a person from his religious beliefs. It very often involves kidnapping and holding the person against his will and acts of violence as part of the process. FACTNET’s articles of incorporation state, “Our sixth purpose is to support the networking and subject related efforts of individuals or organizations for whom having, sharing, and using this information on coercive psychological influence technology is critical to stopping, recovering from, helping others recover from, or preventing abuse in this area.” This psycho-babble is meant to conceal another aspect of FACTNET’s activities. “Helping others to recover” from alleged psychological influence is merely a euphemism for assisting deprogrammers to violate the rights of members of religions by criminally seizing them and attempting to change their beliefs through coercion. This is done for large fees, and I have no doubts that FACTNET intends to use its computerized bulletin board as a computerized referral network for deprogrammers in exchange for the referral fees.
Neither the pursuit of an extortion scheme nor religious bigotry are educational or charitable activities.
As set forth in my recent letter to you concerning CAN, there is strong evidence that FACTNET is simply a “high tech” appendage to CAN and its deprogramming-for-hire referral service. That letter set forth numerous examples of CAN-influenced deprogrammers having been arrested for kidnapping, assault and other crimes in connection with these activities. Galen Kelly, CAN’s security chief for many years, for example, was convicted and sentenced to 7 1/2 years in prison in March of 1993 for
February 24, 1994
kidnapping in connection with a deprogramming attempt by him in May of 1992. CAN’s involvement in that deprogramming was well documented in the evidence of the case.
CAN’s relationship with FACTNET is also well- established. For example, provision four of FACTNET’s Articles of Incorporation, regarding the distribution of assets on
dissolution, states as follows:
“Assets will be divided equally between Cult Awareness Network, 2421 W. Pratt St., Suite 1173, Chicago, IL 60021 and American Family Foundation, P.O. Box 336, Weston, MA 02193.” (Exhibit A)
In addition to demonstrating FACTNET’s close association with CAN, this dissolution clause also fails to meet the organizational test under section 501(c) (3), as there is no guarantee that either CAN or American Family Foundation (another hate group also affiliated with CAN) will continue to qualify for exemption. Indeed, as demonstrated by my letters to you concerning CAN, it does not qualify for exemption.
Additionally, CAN and FACTNET share a common board member, Kent Burtner, a long-time opponent of new religions.
Lawrence Wollersheim, one of FACTNET’s founders, attended CAN’s annual convention in November 1993. While there, he promoted the computerized bulletin board service offered by FACTNET for $1000 per applicant.. Additionally, CAN Board member Paul Martin promoted FACT in the speech he gave at the convention, encouraging CAN members to support it. Wollersheim has a long history of shady money-making schemes and this time has combined making money directly with his vendetta against Scientology. These are not exempt purposes or activities.
FACTNET does not qualify for tax exemption. It is seeking to use 501(c) (3) status to have the government in effect fund its campaign of hate and bigotry through tax exempt contributions. Its application for tax exemption should be rejected.
Please let me know if I can provide additional information in connection with these matters.
February 24, 1994
Thank you very much for your consideration.
Heber C. Jentzsch
When the IRS granted tax exemptions to the church, it did so mainly on the basis of what Scientology did with its money.
WASHINGTON — It might be easier for a camel to walk through the eye of a needle than for the IRS to judge the merits of a religion. So when it comes to considering tax exemptions, the agency sticks to what it knows: money.
For the Church of Scientology, which won a series of tax exemptions earlier this month, that meant proving no one was pocketing the millions of dollars in donations the organization collects for religious services.
It also had to assure the Internal Revenue Service that the church operates “exclusively for religious or charitable purposes.” And, as part of its deal with the IRS, the Scientologists agreed to drop a group of nettlesome lawsuits against the tax agency.
Those were the main issues that led the IRS to reverse decades of decisions against the Scientologists and grant exemptions to 153 Scientology churches, missions and corporations earlier this month, according to the IRS, documents in the case and private tax attorneys.
Despite the explanations, though, some taxpayers and tax lawyers remain puzzled.
The Church of Scientology is, after all, an organization that bugged IRS offices, saw 11 of its members sent to prison and was found to be financing founder L. Ron Hubbard’s lifestyle aboard a yacht.
“Either Scientology changed very basically or the IRS changed. Or maybe both,” former IRS commissioner Donald Alexander said of the settlement.
“I hope that the IRS did not give in to intimidation,” Alexander went on, alluding to the years in the 1970s when his agency battled the church. “By intimidation, I mean 2 o’clock in the morning telephone calls.”
To sum up, Alexander said, “I have great reservations, based on the public record and published stories, about this organization’s activities and whether this was, is, or remains a money-making cult.”
Sheldon Cohen, commissioner when the IRS first revoked a Scientology tax exemption in 1967, is surprised with the reversal, too, though he said IRS officials believe no one is profiting financially.
“They made the case that they are no longer sharing with the Hubbard family, and they are otherwise deserving of the exemption,” said Cohen, a tax lawyer in Washington, D.C.
The question of private enrichment — called “inurement” in legal jargon — is at the center of most tax-exemption disputes, lawyers say. In 1984, the U.S. Tax Court ruled that Scientology founder Hubbard was profiting from the Church of Scientology of California, and therefore blocked an exemption for what was then the organization’s “mother church.”
“It has made a business out of selling religion,” the court wrote, “It has diverted millions of dollars through a bogus trust fund and a sham corporation to key Scientology officials and it has conspired for almost a decade to defraud the U.S. government by impeding the IRS from determining and collecting taxes from it and affiliated churches.”
“Were we to sustain the petitioner’s exemption,” the court wrote, “we would in effect be sanctioning petitioner’s right to conspire to thwart the IRS at taxpayer’s expense.”
A lot has happened in the years since.
Hubbard died in 1986. The Scientologists insist they have kicked out the people who were involved in the Church’s notorious dirty-tricks operation. In another step toward legitimacy, the church hired former U.S. government tax lawyers who filed extensive responses to IRS inquiries about Scientology’s inner workings.
IRS spokesman Frank Keith said that based on the information the Church provided on its organizational and financial structure, the agency was able to determine there were no “issues of inurement” in the Scientology cases.
He said federal privacy laws prohibited him from providing a more detailed explanation of the tax exemption. He would not even say, for example, whether IRS Commissioner Margaret Richardson — an appointee of President Clinton — approved the agreement.
Records in the case indicate John Burke, the IRS’ assistant commissioner for employee plans and exempt organizations, invited the latest round of negotiations with the Scientologists in 1991, during the Bush administration. Burke, a career IRS employee, retired last month and could not be reached for comment.
As for Scientology’s opinion on why the IRS relented, spokesman Marty Rathbun said his church has “always been legitimate, and nothing’s changed.”
“The fact of the matter is they put us through more scrutiny than any other tax-exempt organization, including the Poynter Institute, which owns the St. Petersburg Times,” Rathbun said.
(The Poynter Institute for Media Studies, a school for journalists, is a tax-exempt organization. However, the newspaper pays taxes on its profits and contributes to the institute.)
There is no doubt the Church of Scientology underwent scrutiny. The IRS released nine boxes of material from the case that includes the questions that examiners asked and the lengthy responses from the Church of Scientology.
The documents do not make clear the total amount of money Scientology takes in through its numerous corporate entities. Records from 12 Scientology affiliates, all but one for 1992, list $275-million in assets.
Among the numerous questions from the IRS were inquiries about the cash flow of the church’s affiliates, the compensation the church’s top officials received, living expenses of church staff and the organization’s checkered past.
For the most part, the church lawyers’ written answers were direct. At other times, the responses blasted the government, or proselytized about Scientology.
“It is time to end this shameful IRS involvement in trying to destroy Scientology,” the Scientology legal papers said. “Why must the Service follow in the footsteps of the Nazis, who spread black propaganda about the Jews so that the German people would be inured to the massacre of millions?”
“Many such dogmas have borne the imprimatur of government — the indestructibility of the Roman Empire, the supremacy of the Aryan race, the inevitable triumph of communism over capitalism, the legal segregation of the races,” the brief said. “History, however, always has proven otherwise: Rome fell, the Nazis were defeated, communism collapsed and apartheid was unmasked for the evil it is. History is on our side today.”
In its filings, Scientology complained the IRS was applying what it called a “double standard” to the self-styled religion. As an example, church lawyers pointed out that the IRS extends a tax exemption to the Catholic Church despite accusations that some Catholic priests have molested children.
The IRS has, however, refused other church’s tax-exemption requests. For example, it rejected a request by a group called “Church by Mail,” run by two reverends who mailed minted sermons to several million households. The two collected excessive salaries from the advertising agency that printed and mailed their sermons, according to court records.
That was proof of “inurement” and was enough to reject the exemption for the Church by Mail. And the recently released documents show that the IRS was similarly interested in the biggest money-makers in Scientology.
The IRS wanted to know the compensation of the highest-ranking official, David Miscavige, and his family. The Scientology lawyers responded that in 1991, Miscavige was paid $62,683, his wife made $94,042 [Correction (10/27/93): An article about the Church of Scientology on Sunday overstated the salary for the spouse of top Scientology official David Miscavige. The 1991 salary for Miscavige’s wife, Michele, was $31,359, according to records the Church of Scientology filed with the Internal Revenue Service] and other family members were paid $11,082.
It turns out, though, that the highest-paid Scientologists are recruiters and fund-raisers who the lawyers say aren’t on the staff of the church. The recruiters and fund-raisers earn a commission of money they collect from new Scientologists and donors, according to the records.
“This practice defrays the cost of proselytization and obtains new members for a church. It extends the influence of the church into society by encouraging individual proselytization,” the Scientology lawyers explained.
The biggest 1991 salary: Ken Pirak earned $407,052 through fund-raising commissions, according to the documents.
If that sounds like a lot of money, the organizations themselves are collecting millions by charging Scientologists for a religious service called “auditing.” The process is essentially an ascending series of personal-evaluation sessions that, according to church doctrine, clear a person of bad thoughts. Each step of auditing intensifies and costs more.
Paying for religious services sounds non-traditional, but tax lawyer Cohen reasons that other places of worship have similar setups.
“For example, various denominations charge for seats” in a church, Cohen said. “I’ve seen (pews) in Episcopal churches with a family name on it: If you’re there, you get that seat.”
In his own case, Cohen says he receives a bill for dues from his synagogue. His name is on a seat in his synagogue as well.
Nonetheless, the Scientologists seemed sensitive to the question and, in their filings with the IRS, sought to assure that the church didn’t charge for absolutely everything.
“The amount of free religious services that Churches of Scientology provide is extensive,” the church wrote. Ever ready with numbers, the lawyers provided a statistical study of three church affiliates: “They found that they minister an average of 27 to 33 percent of their religious services without charge.”
In their inquiry, IRS examiners learned that the Scientologists are spending $114-million to archive L. Ron Hubbard’s writings and protect them in an underground storage vault. They’re spending millions more on advertising and renovations of Scientology facilities in Clearwater and elsewhere.
Cohen, the tax lawyer, noted that spending on such costly vaults is not a big issue in determining a church’s tax exemption.
“A church is a church. Some churches have very plain buildings, and a very meager house for their minister, and some have very elaborate buildings. . . . That’s a judgment,” Cohen said.
As for the underground vaults, he said, “If that makes them feel better, God bless ’em. You start judging that, and you’re in the religion business.”
Yet another area the IRS probed was the Church of Scientology’s troubled past.
The “Guardian Office,” set up to harass the government, has been shut down, the Church of Scientology says. “Any individuals who were found at that time to be on staff were dismissed and informed never to apply for re-employment,” the Scientology lawyers wrote.
New hires are checked against a list of former Guardian Office criminals, the lawyers wrote.
The Scientologists also have been busy in civil court, in both suing and getting sued, and the IRS was curious about that, too. The Scientology attorneys listed the lawsuits, including those from former members seeking donations with this explanation: “Our consistent view has been that the civil litigants are solely motivated by greed.”
As for the lawsuits it files, the church attorneys wrote, “We have to litigate seriously because we have been subjected to great persecution.”
The Scientologists filed as many as 100 lawsuits against the IRS that apparently strained the agency’s resources, according to published reports.
One tax lawyer said IRS officials had groused privately about the time spent on the lawsuits. “It’s consumed a fair amount of resources in the exempt organizations (division) over there to deal with them year after year after year,” said the lawyer, who declined to be quoted by name. I can see the motivation on the part of the service to work things out.”
Scientology spokesman Rathbun says the lawsuits were all settled as part of the agreement. IRS spokesman Keith would only say that “a variety of outstanding tax and litigation issues” were resolved.
[Picture / Caption: Founder L. Ron Hubbard died in 1986.]
[Picture / Caption: The Church of Scientology Flag Building: The church is spending millions on advertising and renovations of facilities in Clearwater and elsewhere.]
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