Wyden’s inquiry comes at the same time that we have also confirmed with a former member of the church that IRS Criminal Investigation special agents sought and held a meeting with him recently to gather background on Scientology’s activities — including hundreds of pages of documents from Monique Rathbun’s harassment lawsuit in Texas and the federal fraud lawsuit brought by Luis and Rocio Garcia in Florida.
After two decades of inaction, could the IRS finally be ready to revisit its legendary capitulation to Scientology leader David Miscavige?
On October 8, 1993, Miscavige announced to a capacity crowd at the Los Angeles Sports Arena that “the War is Over”: the IRS had caved after years of combat with the church. A confidential deal had been worked out that not only granted tax-exempt status to many of Scientology’s entities, but it also saved Scientology from a billion-dollar tax bill that it would not have been able to pay.
The IRS had been brought to its knees by a litigious organization that at the time was at its height in size and power.
Two decades later, Scientology is dying. Facing numerous crises, the dwindling church is a shadow of what it was in the early 1990s, and its alleged abuses have resulted in numerous lawsuits and damaging press stories.
In the fall, a longtime reader of the Underground Bunker with a background in non-profit management grew incensed at the repeated revelations about Scientology that had been coming out in news stories. She had been affected by reading about the Rathbun harassment lawsuit as well as the forced-abortion lawsuit filed by Laura DeCrescenzo in Los Angeles, stories that were developing nearly daily here at the website. She was also livid after reading Mike Rinder’s account of learning about the death of his mother, who had “disconnected” from him.
“This young woman, Laura DeCrescenzo, was subject to what amounted to torture by a non-profit organization. And the disconnection that rips apart families — what Mike Rinder and Claire Headley have gone through, for example. All of this is public record, and yet the organization that promulgates this is given 501(c)(3) exemption?” the woman tells us.
Her background in non-profits made her aware, more than most, that Scientology’s recent history suggested that it was regularly violating the terms of its tax-exempt status. So she wrote to Wyden, asking him if he was aware of Scientology’s reported abuses.
“I’m a mother and a fourth-generation Oregonian. I wrote to him, based on my experiences with non-profits, what Scientology has been doing to these women is clearly a violation of the non-profit statutes, and it’s been going on for a long time. Why is it allowed?”
She submitted her inquiry, and then she waited.
Several months later, on Tuesday, she got a reply. We’re posting an image of the e-mail the senator sent her (click the image to enlarge it), as well as a transcript of it.
Thank you for contacting me about the tax exempt status of Scientology. I appreciate hearing from you, and I apologize for the delay in my response.
As you may know, churches and other religious organizations are exempt from federal income tax under IRC section 501 (c)(3). Among other things, this means their mission-related income is exempt and they’re allowed to receive tax-deductible contributions. The IRS granted tax-exempt status to Scientology in 1993, and that decision has come under much debate ever since.
In order to ensure that your concerns are adequately addressed, I have forwarded a copy of your correspondence to Catherine Barre, the Director of the Legislative Affairs at the Internal Revenue Service, and asked her to respond directly you. Because I am also interested in her reply, I have requested a copy of their response be sent to my Washington D.C. office.
Again, thank you for keeping me apprised of the issues that are important to you. If I can be of further assistance to you on this or other issues, please do not hesitate to contact me.
United States Senator
While Wyden waits for a response from the IRS, the tax agency itself is already making its own moves. For several months, we’ve been hearing unconfirmed reports that the IRS was finally beginning to show signs that it was aware of Scientology’s alleged abuses, and was beginning to ask questions about them.
Then, this week, we got confirmation from a former church member that he had met recently with IRS investigators who were eager to learn about Scientology’s recent activities, including revelations in court documents.
“They asked for a half hour meeting that ended up going more than two hours,” the former church member tells us.
He estimates that he turned over approximately 500 pages of documents, many of them from the Rathbun and Garcia lawsuits. In the Rathbun lawsuit, for example, Scientology made the surprising decision to admit that it had, in fact, been behind a bizarre 2011 operation involving several church members who disrupted the lives of Monique and Marty Rathbun at their South Texas home. It was an operation that involved multiple private investigators and attorneys and must have cost substantial amounts, and was done, Comal County Judge Dib Waldrip found, to protect Scientology’s business interests.
The Rathbun case and many others, critics say, demonstrate that Scientology is a moneymaking enterprise that spends huge amounts to harass and stalk perceived enemies — activities that don’t fit its status as a tax-exempt religious organization.
“I explained to the investigators that Scientology has always acted this way, and it got its tax exempt status by fraudulent means,” the former church member tells us.
The CI special agents, he says, specifically wanted documents that showed Scientology’s activities after 2010.
Scientology’s history with the IRS is a long and contentious one. Our legal expert, Scott Pilutik, laid out in great detail that history and why the IRS might review its decision to grant Scientology’s exemption in a piece he wrote for Forbes two years ago. Rather than try to summarize it, we’re going to reproduce Scott’s analysis in full here.
Spend a few hours Googling “Scientology” and the questions will start piling up in your mind: How can a religion be so profitable? Why does it attract so many celebrities? Do they really believe that we’re all descended from an intergalactic overlord named Xenu?
But the most fascinating question has nothing to do with Scientology’s beliefs: Why is Scientology tax exempt? (And should it, perhaps, not be?)
The best way to begin answering this is to first puncture a popular misconception. People often conflate recognition as a religion and recognition as a tax exempt § 501(c)(3) entity as being effectively the same thing. But the IRS does not make determinations of an entity’s religiosity. In fact, the IRS is constitutionally prohibited from even entertaining the question. Whether Scientology is or is not a religion is thus a red herring — a philosophical as opposed to legal question, far outside the scope of the tax exemption question.
The IRS instead considers whether the organization maintains a “religious purpose,” which the IRS attempts to divine by asking (1) whether the beliefs of the organization are “truly and sincerely held,” and (2) whether the practices associated with the organization’s beliefs are not “illegal or contrary to clearly defined public policy.” Crudely restated, a qualifying religious organization must not be a sham, and it must not be morally repugnant.
Before considering how Scientology fares by this analysis, let’s first look at its tumultuous history with respect to the question of tax exemption.
The history of the Scientology religion is peculiar in that it began not as a religion but as a self-help therapy—a psychotherapeutic process designed toward self-betterment, as detailed in L Ron Hubbard’s 1950 book, Dianetics. Hubbard gradually refined Dianetics, which urged readers to audit themselves, to become Scientology, which administers the auditing under its strict auspices.
Sixteen years after Hubbard successfully foisted Scientology on the world, the advantages in labeling it a religion dawned on him when he was confronted with the problem of transferring assets from one non-exempt corporation to an exempt but inactive one. He wrote in 1966:
So we’re getting all straight now, it seems. And good news! As all auditors will be ministers, ministers have in many places special privileges including tax and housing allowances. Of course anything is a religion that treats the human spirit. And also Parliaments don’t attack religions. But that isn’t our real reason – it’s been a long hard task to make a good corporate structure in the UK and Commonwealth so the assets could be transferred.
– HCO Executive Letter Of 12 March 1966
This reconceptualization from psychotherapy to religion afforded Scientology a few distinct advantages: (1) protection against government regulation (with respect to Hubbard’s quasi-medical claims); (2) immunity from liability against claims of fraud; and (3) the monetary benefits of the tax exemption. Whereas most religious beliefs predate the tax exemption, Scientology grew in its enticing shadow, and indeed seems to have been molded by its allure.
The IRS responded to Hubbard’s redefining Scientology as a religion by rescinding Scientology’s exempt status in 1967, which triggered decades of costly litigation between the two. In the most important of those cases, Founding Church of Scientology v. United States, the IRS successfully argued that Scientology failed to qualify for 501(c)(3) exempt status because its net earnings inured to the benefit of private individuals, namely founder L Ron Hubbard.
Scientology took another, ultimately more effective, tack against the IRS, when it organized a number of its parishioners to sue the IRS for disallowing deductions for payments they made for Scientology auditing under Section 170 of the tax code, which allows individuals to claim deductions for charitable contributions. Dozens of cases were filed across the country, leading to different results — the First and Ninth Circuits courts (in, respectively, Hernandez and Graham) agreed with the IRS that auditing payments were non-deductible, but the Second, Sixth, and Eighth Circuits (in, respectively, Foley, Neher, and Staples) agreed with Scientology.
The Supreme Court consolidated the cases in 1989, now called Hernandez, and resolved the circuit split against Scientology. It found that, structurally, payments for auditing services was in essence a quid pro quo transaction. A true donation, the court reasoned, does not trigger an expected return such as that present in the Scientology/parishioner auditing transaction. The dissent in Hernandez instead recommended examining the benefit itself for evidence of religiosity—if the benefit is purely religious, the inquiry as to whether a contribution is a donation should end there.
Losing in the Supreme Court usually represents the end of the road, but Scientology was persistent and tenacious. In 1991 it filed another Section 170 challenge, this time in the Eleventh Circuit (Powell v. U.S.), conceding the quid pro quo argument it lost in Hernandez but raising another argument, that the IRS was administratively inconsistent in allowing, for instance, rental fees paid by Protestants for the privilege of sitting in a specific pew at religious services, while denying Scientologists their auditing payment deduction.
As Powell was being remanded to the district court, however, the IRS suddenly caved and gave Scientology everything it asked for in 1993 — deductions for auditing and its restoring its tax-exempt 501(c)(3) status. The war was over and Scientology won.
So what happened — why did the IRS crumble? A 1997 New York Times story revealed how Scientology had paid a number of private investigators to personally investigate and surveil IRS officials, financed front groups, including a fake news bureau, to attack the IRS politically, and made an unscheduled visit to the IRS’s national office in Washington D.C., where Hubbard-successor (and current leader) David Miscavige was permitted to meet with then-Commissioner Fred T. Goldberg, a meeting Goldberg denies took place.
Scientology’s aggressive conduct shouldn’t have come as a surprise to the IRS, since nine Scientologists, fourteen years earlier, were convicted on an array of indictments, including burglarizing government offices, in an attempt to infiltrate the IRS among other government agencies, which resulted in prison sentences for each defendant. Some of the goals of “Operation Snow White,” as the infiltration program was internally called, were met when Scientology and the IRS settled in 1993.
We may never know whether sinister skullduggery made the IRS fold, but it could also simply have been that the IRS was being drained of limited resources and unable to continue litigating on so many fronts, and with no end to the lawsuits in sight, threw in the towel.
Regardless of how it played out behind the scenes, the substantive issues that led the IRS to rescind Scientology’s exempt status and deny its parishioners’ auditing deductions, have not changed, or ever been publicly addressed by the IRS, which refuses to even acknowledge the validity of the secret agreement published by the Wall Street Journal in 1997.
Accordingly, despite the IRS having circumvented its result, Hernandez remains good law, and the Scientology-IRS agreement exists in direct contravention of the Constitution. This was noted by Ninth Circuit Judge Barry G. Silverman in a recent case brought by a Jewish family (Michael and Maria Sklar) who argued that if Scientologists can deduct auditing payments, they should be permitted to deduct their children’s religious school tuition:
If the IRS does, in fact, give preferential treatment to members of the Church of Scientology—allowing them a special right to claim deductions that are contrary to law and disallowed to everybody else—then the proper course of action is a lawsuit to put a stop to that policy.
The court found against the Sklars, essentially reasoning that two wrongs don’t make a right. But how then to right the Scientology wrong? An argument might have been made that perhaps a citizen-taxpayer might have standing under the taxpayer standing exception under Flast v. Cohen, but after the Flast decision was so restrictively narrowed in 2007’s Hein v. Freedom From Religion Foundation, it would seem that the IRS-Scientology agreement is immune from anyone even bringing a legal challenge.
If someone were to break through the catch-22 and challenge Scientology’s exempt status in court — how might that go? Returning to the stated IRS criteria requiring, first, that entities have sincerely held beliefs, it seems likely Scientology would clear this hurdle. Scientology would have little difficulty demonstrating that its beliefs are sincerely held.
However, if Scientology’s practices were to be examined under the second IRS “religious purpose” criteria, requiring that an entity’s practices not contravene public policy, significant questions are raised, given how Scientology (1) forces its members to “disconnect” from family members; (2) mistreats children; (3) coerces abortions by its staff members; (4) maintains a practice of what it calls “Fair Game” by which its perceived enemies can be and often are retaliated against in extrajudicial manners; (5) operates in every way as a taxable for-profit business, by accepting money in a quid pro quo exchange for its services; and finally, (6) continues to personally benefit an individual (inurement), this time Hubbard’s successor, David Miscavige.
We, as a country, presumptively bestow exempt status on religious groups because we believe religious groups provide a net benefit to the larger community. In sharp contrast, Scientology, by its morally repugnant practices, benefits itself at significant cost to the larger community. It’s high time the IRS rescinded Scientology’s exempt status.
A couple of notes in response to Scott’s piece: We have asked Marty Rathbun multiple times about the 1991 visit he and David Miscavige made to see then-IRS commissioner Fred Goldberg. Each time, Rathbun has told the same story (and you can see it for yourself in the excellent Channel 4 documentary, Scientologists at War). At the time of that meeting, the IRS had been hit with about 2,400 lawsuits by individual Scientologists as part of the church’s all-out war with the tax agency. Rathbun says that he and Miscavige let Goldberg know that those suits would go away overnight if the two organizations could come to an agreement. It was that prospect, Rathbun says, that convinced Goldberg to begin a formal study of Scientology’s status. Tax experts we consulted tell us that once Goldberg made that decision, there was little question that a settlement resulting in the church’s tax-exempt status would then be worked out — even though it took two more years, after a new president and a new IRS commissioner had been sworn in.
One of the provisions in the agreement that was hammered out obliges Scientology to give refunds when members request them. One of the reasons the CI special agents may be interested in the Garcia case is that it is the latest and perhaps most potent lawsuit that takes aim at Scientology’s refund process, which members have long complained makes it almost impossible to get back the thousands of dollars that Scientologists put “on account” for future services.
There’s clearly a lot for the IRS to consider. But it’s also important to keep in mind the federal government’s track record. The FBI intensely investigated Scientology for human trafficking allegations in 2009-2010 before dropping its probe. The Department of Homeland Security then began its own investigation before it too appeared to peter out. Now, we believe the IRS is beginning to revisit one of its most embarrassing defeats. Does it really have the will for another protracted fight with L. Ron Hubbard’s outfit?
We are very eager to find out.
Claire Headley podcast, part 2
Another strong interview with Claire Headley by Jeffrey Augustine…
Live streaming video by Ustream
More chaos for Flag Down as venue changes
The Flag Down conference is going through more upheaval as a new venue will host speakers Friday, and the event’s primary local organizer announces she is washing her hands of the whole thing.
According to the original schedule, Thursday was supposed to feature a beach party with speakers returning to Minnreg Hall in Largo on Friday evening. But this afternoon, a live feed suddenly came on, with Pete Griffiths announcing that Friday night’s program will occur at a Holiday Inn near the beach. Shortly after the live feed began today, local organizer Laura Flynn announced that she was no longer connected to the event.
So what happened? We talked with one of the organizers of the event who is in from out of town.
“John Sweeney was upset that the first night was really unprofessional,” we were told. Sweeney usually uses a video presentation when he speaks, and he was stunned that he couldn’t do that at Minnreg Hall on Monday night.
“He encouraged us to find a better venue,” the organizer says. “Minnreg is just a gym, it’s not really a conference hall. We had to put people on milk crates because the podium was too high. It was embarrassing.”
When the participants came to Clearwater Beach today, two of them went looking for a better venue, and found it at the Holiday Inn. They booked it, and will not return to Minnreg on Friday.
This afternoon, they decided to put on some additional speakers, and asked to use a room at Post Corner Pizza. That’s where the live feed is coming from right now, but we’re told the wifi there has severe problems.
But the organizers are hoping for a much better final night, with Jamie DeWolf and John Sweeney at the Holiday Inn.
“We’re trying to make the last night more professional.”
When we pointed out that Laura Flynn had publicly resigned when tonight’s live feed had begun, the organizer told us, “We were not expecting anything different.”
Posted by Tony Ortega on May 8, 2014 at 07:00
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UP THE BRIDGE (Claire Headley and Bruce Hines train us as Scientologists) 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43
SCIENTOLOGY MYTHBUSTING (Historian Jon Atack discusses key Scientology concepts) 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43