8. The IRS Role

The power and political influence of Scientology's enemies had dealt the movement a crippling blow in Australia. There was no doubt about that. But it was still going strong in the United States, the country in which the annihilation campaign had begun.

The point of focus shifted once more to America. There, the ongoing efforts of the federal Food and Drug Administration had so far produced only limited results; and the ruling by a U.S. Appellate Court that Scientology was a bona fide religion dimmed the legal prospects as the case moved towards the Supreme Court.

There was one agency of the Government, however, whose vast, complex and ever-changing code of laws and regulations made it virtually impossible for a citizen or organization ever to win a final victory against it. That was the Internal Revenue Service.

Absolutism and tyranny are deeply ingrained in all bureaucracies; but the IRS these evils have been endowed with almost limitless power. No one is beyond its reach. That is why income tax laws had been used to put gangsters behind bars when the police failed in their job of digging up the evidence needed to convict them for their real crimes.

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To the short-sighted, politically naive reader who asks what difference it makes that such means were used to "nail" a mobster, so long as he was put away, I have this to say:

As all history proves, such illegal methods of entrapment are first used against suspected criminals or unpopular victims; then are more widely applied to political figures and to individuals who challenge the regime or hold nonconformist views. Finally, all pretence of expediency gives way to unbridled despotism: they become the instruments of general coercion and personal revenge.

A judge of the U.S. District Court not long ago observed from the bench: "No sophisticated person is unaware that even in this very Commonwealth [Massachusetts] the Internal Revenue Service has been in possession of facts with respect to public officials which it has presented in order to serve what can only be called political ends, be they high or low. And the judge who knows the score is aware that every time his decision offends the Internal Revenue Service, he is inviting a close inspection of his own returns." 1 (pp. 258-9)

In a previous work I have examined in detail the odious techniques employed by the IRS intelligence division, and I will not discuss them at length here. Suffice it to say that there is documented evidence which shows that under the guise of ferreting out tax dodgers and racketeers, secret agents of the Internal Revenue Service have, with impunity and contempt, violated both State and Federal laws. Their criminal activities have included illegal wire-tapping; use of electronic snooping gear to spy upon innocent and guilty alike; interception and opening of sealed, first-class mail; breaking and entering private homes, offices and automobiles, without a search warrant, harassment of defence attorneys; and using bugged conference rooms in IRS offices, equipped with secret microphones and one-way mirrors to monitor privileged conversations between taxpayers and their legal counsellors or accountants.

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After months of careful investigation of IRS practices by the judiciary Subcommittee of the U.S. Senate, the cominittee chairman declared: "There appears to be a festering infection in the IRS."

Far from instituting the reforms that were urgently called for by the hearings, IRS officials secretly aided Life magazine in a political assassination of the Senator who had dared publicly to challenge their Gestapo-like tactics.

Scientologists have reason to believe that in the continuing and intensive investigation of their Church, IRS agents are employing some of the spying techniques described above.

The importance the Scientology surveillance programme has for the IRS is indicated by the fact that on September 2, 1970, S. B. Wolfe, director of the Audit Division, issued a lengthy three-page confidential supplement (42G(11)6G53) to their Manual, describing the background of the Church and instructing district offices to be alert to identify any Scientology-type organizations filing returns.

A special, Scientology Case Report form (M-0696) was printed by the agency's National Office and distributed to each region's Exempt Organization Program Director.

In keeping with the IRS practice of disposing of investigational notes or information that might be subpoenaed in a court trial, the directive said: "On completion of this program, remaining stock of forms M-o696 should be destroyed. This report is exempt from control under IRM 1(2o)16.35 (1)(f)."

When the Founding Church of Scientology first applied to the Internal Revenue Service in 1956 for exemption from Federal income taxes, the IRS granted the application owing to the fact that the Church was duly incorporated as a religious and educational organization in the District of Columbia.

Two years later, the federal tax agency sent the Church a letter withdrawing their tax-exempt status on the ground

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that the exposition and propagation of "tenets set forth in the books of L. Ron Hubbard, and related instruments of instruction relative to 'Scientology' in training courses, clinical courses and otherwise" did not constitute an exclusively religious or educational activity.

In other words, the IRS mandarins had arrogated to themselves the power which the federal judge previously quoted said "no official, high or petty" could exercise under our Constitution... They had purported to determine what was and was not a religious belief.

To any but the most innocent it must be obvious that the initiative for the IRS action did not originate within the agency itself. The decision to revoke tax exemption after it had been granted was prompted by influences at work elsewhere.

We have already examined compelling evidence. that such influences were indeed active behind the scenes. As an added example:

Six months before Scientology's trial in the U.S. Court of Claims, the director of AMA's Bureau of Investigation wrote a letter to David W. Meister, executive secretary of the Peoria Medical Society, in which he said: "For your confidential information, some agents of the Internal Revenue Service were in the office not too long ago and we gave them a bundle of information on 'Scientology', Hubbard and their operations."

Scientology attorneys filed a protest against the IRS ruling and asked reinstatement of their exempt status, but IRS refused.

The Church's response was to bring suit in the U.S. Court of Claims, arguing that the action taken by IRS was "arbitrary, prejudicial and erroneous".

The Internal Revenue Service answered by denying the charges and at the same time filing a counter-claim against the Founding Church for $3,262.75, together with interest, for the fiscal year beginning July 25, 1955 and ending June 30, 1956.

The IRS Role / 179

The trial did not begin until July 5, 1967. After six days of testimony by witnesses for both sides, the court ruled that the Church was not entitled to an exemption because part of its earnings inured to the benefit of private individuals.

According to the Government's own audit, Hubbard's entire income from all Scientology sources during the taxable years in issue (June 1955 through June 1959) averaged less than $2o,ooo a year, including royalty on his books and fees for lectures given by him at various Scientology congresses. Mrs. Hubbard, an officer of the Church, received an average of less than $4,000 per year, as did L. Ron Hubbard, Jr., who held responsible jobs in the organization.

In what Church attorneys called "argument by innuendo", the Government implied to the Court that the Hubbards were receiving immense sums of money from all Scientology Churches collectively and that on that basis the exemption ought to be denied the Founding Church of Scientology.

If this were true, asked Scientology lawyers, why hadn't the Government introduced evidence to that effect? The record was barren of any such evidence.

The Founding Church of Scientology immediately filed a petition for amendment of judgment or for a rehearing. A year later, the case was heard before the full court of seven judges.

The court carefully avoided the underlying issue of the case, that is, the question of whether the Government and the courts are entitled to judge or characterize a religious practice for purposes of allowing or denying tax exemption,

Writing the opinion for the court, judge Collins declared: "The court finds it unnecessary to decide whether plaintiff is a religious or educational organization as alleged, since, regardless of its character, plaintiff has not met the statutary conditions for exemption from income taxation."

Thereafter, none of the precedent cases cited by the opinion were concerned with religious bodies. Instead, they

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involved such organizations as The Broadway Theatre League of Lynchburg, Va., Birmingham Business College, Texas Trade School and Underwriters' Laboratories, Inc.

The nit-picking, letter-of-the-law opinion cited as evidence that some of the Church's net earnings inured to the benefit of private individuals, included such bagatelles as the fact that Hubbard had use of an automobile at the organization's expense and that the Church provided and maintained a personal residence for Hubbard and his family. Mrs. Hubbard had received rent for property owned by her that was leased to the Church. And there was "a completely unexplained figure of $25o, and loans of $8oo were received in 1958-59". There was also the weighty fact that L. Ron Hubbard, Jr. had been reimbursed for expenditures of approximately $2oo in 1957-8 and 1958-9. And so on.

The court concluded as a matter of law that the Founding Church of Scientology was not entitled to a tax-exempt status, and dismissed their petition.

If this ruling were allowed to stand, it would provide legal authority for the Internal Revenue Service to act against not only the Founding Church in Washington, but all the branch Scientology centres throughout the United States. The enormous sums in back taxes and interest that could be assessed for all the years involved could be ruinous to the Scientology movement in America.

The only remaining legal recourse open to the Founding Church of Scientology was to petition the Supreme Court to review its case. Accordingly, attorneys for the Mother Church asked the High Court for a writ of certiorari, arguing that denial of tax exemption to a particular religion constitutes discrimination among religions and is therefore a violation of the establishment clause of the First Amendment.

In opposition, government attorneys again dwelt upon the fees, royalties and compensation for services Hubbard had received and arrogantly asserted that, as "tax exemp-

The IRS Role / 181

tion is a matter of legislative grace, petitioner has the burden of clearly establishing a right to it".

The Supreme Court denied a writ of certiorari.

In my opinion, the fundamental issue inherent in the case was never argued - namely the question of whether a federal agency has the right to determine any of the financial matters of a Church.

The many thousands of followers of Scientology, with a few exceptions, seem to have derived more personal benefit and spiritual help for the money they spent than the parishoners of large, established Churches, whose vast wealth is today often expended in non-religious (and sometimes anti-religious) political undertakings.

The Government's rank hypocrisy, as well as the discriminatory practices involved in the whole question of tax exemption is nowhere more apparent than in the case of huge, tax-exempt foundations which have been permitted to donate countless millions of dollars to revolutionary groups whose avowed aim was the subversion and violent overthrow of American civilization.

As far back as 1953 Congress set up a special committee under the chairmanship of Rep. B. Carroll Reece to investigate the structure and operations of these giant tax-free organizations. But the shocking disclosures of the foundation-financing of the radical left were never given much play in the mass media. In his book, Tragedy and Hope: A History of the World In Our Time, Prof. Carroll Quigley tells why:

"It soon became clear," he wrote, "that people of immense wealth would be unhappy if the investigation went too far, and that the 'most respected' newspapers in the country, closely allied with these men of wealth, would not get excited enough about any of the revelations to make the publicity worth while, in terms of votes or campaign contributions."

Typical of the quiet way the masscom handles news of these tax-exempt corporations' immense contributions to

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the destructive elements in society was the "play" given the announcement of the left-handed Ford Foundation that it was giving $5oo,ooo to the militant black racist organization, CORE. The press buried the story beneath wooden heads, far back in their newspapers among the indigestion pills and girdle adds. On TV screens, it was an almost subliminal one-liner.

Had even a fraction of the same sum been handed over to, say, the John Birch Society, there would have been screaming banners from New York to Honolulu.

The Ford Foundation has donated millions of dollars to other subversive and Communist-staffed organizations with only whispered accounts of their activities in the media.

The same is true of other foundations controlled by rich industrial families and international financial coteries.

The Internal Revenue Service has never seen fit, however, to question the use by these powerful foundations of enormous tax-free sums to subsidize violent revolution, despite the pious words of the Government attorneys when they told the court in the Scientology case:

"The exemption from tax is made in recognition of the benefit which the public derives from the activities of religious, charitable and educational organizations ... It is based on the theory that 'the Government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare'."

It is hard to imagine what benefits the American public could derive from the race riots, campus unrest, Communist intrigues, left-wing political manoeuvres, and educational subversion which lavish grants from some of the big, tax-exempt foundations have promoted.


  1. Hearings, Senate subcommittee on administrative practice and procedure (Invasions of Privacy) 1965.

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