Tax status of Scientology in the United States

A number of the church's most senior officials, including Hubbard's wife, were eventually convicted and jailed for crimes against the United States government related to the anti-IRS campaign.

Hubbard explained that the intention was to give Scientology "complete security from legal interference" due to "the constitutional guarantees of a Supreme Court ruling that no state shall take action to prevent operation of any organization concerned with the study of the human soul.

[7] The Founding Church's case against the government went before the US Court of Claims in July 1969, where it argued that it should be exempted from federal income tax as it was constituted "exclusively for religious purposes."

For many years, Hubbard expressed strident opposition to Communism, denouncing colleagues to the FBI for supposedly being Communist infiltrators[4]: 117  and claiming that the Soviets were trying to obtain his discoveries.

[4]: 140  In 1955, Hubbard said in a manual on brain-washing that the 1909 Income Tax Law of the United States was a Communist conspiracy, even though the Russian Revolution was in 1917,[11] and in 1956, he wrote that mankind had become so desperate that "he will buy almost any ideology whether it is communism or druidism.

"[13] Income tax was also a symptom of impending fascism, in Hubbard's view; in an undated note issued to Scientologists, he wrote, "It is highly possible that a government only enters upon individual taxation when its ability to produce service for its citizens has dropped below the point of non-existence.

[18] In a similar vein in October 1993, Hubbard's successor David Miscavige gave a speech to the International Association of Scientologists in which he claimed that after failing to crush Scientology in its first few years, "the psychs tuned to the modern day, 20th century inquisitors.

[20]: 91 Hubbard determined at the end of 1966 that he would leave these problems behind by relocating Scientology's leadership, and himself, aboard a small fleet of ships that would travel around the Mediterranean and eastern Atlantic, out of reach of governments and the media.

[7] Three tax-exempt Scientology organizations in Michigan, Minnesota and New York joined the Washington and California churches in a June 1973 agreement to pay ten percent of their monthly incomes to the trust.

"[21] While the church was fighting the IRS in the courts, it also mounted a sophisticated seven-year campaign of espionage against the agency and numerous other government and business organizations in the US, Canada, UK and other countries.

The campaign was intended to bolster its effort to regain tax exemption, but ended disastrously for the church when it was exposed and led to the imprisonment of some of its most senior leaders, including Hubbard's wife Mary Sue.

[20]: 140 [28][29] The documents they seized revealed the scale of the GO's illegal activities and resulted in the imprisonment of eleven senior Scientologists, including Mary Sue Hubbard, for conspiracy against the United States.

However, a review by the Los Angeles Times in 1978 showed that while the IRS listed the church as an organization that "by their very nature can be expected to ignore or wilfully violate tax or firearm statutes," there was no mention of enemies or any suggestion of harassment or retaliation.

In July 1969 the IRS established an Activist Organization Committee, later renamed the Special Service Staff (SSS), to investigate "dissident groups" for suspected breaches of tax laws.

"[30] In 1984, the Los Angeles office of the IRS launched a criminal investigation of Hubbard, prompted by defectors from Scientology alleging that he had skimmed off millions of dollars from church funds.

According to Laurel Sullivan, a veteran Scientologist who was put in charge of it, the aim was to reshuffle Scientology's corporate structure to shield Hubbard from legal liability and conceal his income lines from the church.

The church spent around $6 million on full-page advertisements in USA Today and The Wall Street Journal castigating the IRS under headlines like "Don't Kill My Daddy!"

It drew extensively on the incriminating documents seized by the FBI from the Guardian Office and concluded, "When a religious organization loses track of its charitable mission and conducts its operations for profit or private gain, the reasons for the exemption are dispelled.

In fact, the attorneys working for the government defending these law suits were to become so inundated that their entire budget would be wiped out handling our cases – so much so that they didn't even have money to attend the annual American Bar Association conference of lawyers – which they were supposed to speak at!Many Freedom of Information Act requests were also litigated when initially refused by the IRS.

[20]: 231  This was a highly unusual step – only the second time in thirty years that such an approach had been taken, according to the working group's chairman – as it bypassed the usual channels of the IRS's exempt organizations division.

And by near the end of the 1992 we were hearing that Papa Bush himself – exercising his trademark indecision – was concerned about the effect granting exemption to the Church of Scientology would have on his re-election hopes.Although Goldberg had initiated the negotiations, he left the IRS in February 1992.

[10] Church representatives say they provided answers that satisfied the IRS in what was reportedly the largest application ever received by the agency, filling a collection of files 10 to 12 feet (3.0 to 3.7 metres) long.

[57] However, the working group's tax analysts noted in writing that they were ordered by their chairman not to consider any substantive matters, such as whether the church was engaged in too much commercial activity or whether its leaders were obtaining undue private benefit.

[58] The source of the leak (which was made to both The Wall Street Journal and The New York Times) was never disclosed but it possibly came from Capitol Hill, where a congressional committee had recently subpoenaed numerous IRS documents.

Lawrence B. Gibbs, the previous IRS Commissioner, noted the extensive litigation with "the general uniformity of results that the service had with Scientology" and expressed surprise that the ultimate decision was favorable.

Questions were also raised about whether the IRS had exceeded its powers in granting the exemption after the Supreme Court's decision in the 1989 Hernandez case and whether the law allowed quid pro quo payments to be tax-deductible.

After the agreement was leaked, a New York Orthodox Jewish couple, Michael and Martha Sklar, sought to avail themselves of the exemption granted to Scientologists to deduct eighty percent of the fees paid for "religious training and services".

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 IRS defended its position, saying that case law was clear that religious school tuition was not tax-deductible, and allowing it generally would lead to millions of people claiming tax refunds.

Kurtz and his colleagues wrote in May 1994 to the then Commissioner, Margaret Milner Richardson, to "express serious concern about the failure of the Internal Revenue Service to comment on or explain the meaning of several aspects of its settlement with the Church of Scientology".