January 6, 1998

For 25 years, the Internal Revenue Service held all of the cards against the Church of Scientology. The IRS steadfastly refused to give Scientology a much-coveted tax exemption, and the courts consistently sided with the agency. Then the IRS abruptly folded in 1993, granting the tax exemption while refusing to disclose the details of the agreement. Amid such secrecy, taxpayers could only wonder what Scientology offered to persuade the IRS to abandon more than two decades of policy.

The answer turns out to be a relative pittance.

The secret agreement, obtained by the Wall Street Journal, indicates Scientology bought its way out of potentially hundreds of millions of dollars in taxes for $12.5-million. In return, the IRS granted tax-exempt status to 114 Scientology-related organizations, dismissed tax penalties and liens against some church groups and stopped audits of 13 Scientology entities. That is not a deal; it is a sellout by an IRS that has been accused of running roughshod over less threatening taxpayers.

The tax-exempt status gave Scientology something even more important than avoiding millions of dollars in tax bills. It gave members a powerful weapon to use in their ceaseless public relations campaign to be considered a legitimate religion. When Germany fights Scientology and labels it a business, the church waves its IRS ruling. The impact also was felt in Pinellas County, where the ruling forced the property appraiser to treat Scientology "like any other religion" and give up a long court battle over whether Scientology's local properties should be exempt from property taxes. Now about $20-million of Scientology's $30-million worth of property in the Clearwater area is exempt from taxes. Taxpayers have the IRS to thank.

With details of the Scientology agreement now public, there is every reason to question whether IRS officials were more interested in avoiding harassment than in sound tax policy. The agreement called for Scientology to drop its lawsuits against the IRS and agency officials and to stop helping church members who had filed similar lawsuits. That could have affected some 2,200 lawsuits. The New York Times also has reported about Scientology's hiring of private investigators to look for code violations at a building owned by IRS officials, and about an IRS whistle-blowers group financed by the church. Scientology was not the typical taxpayer quarreling over its tax bill, and it did not receive typical treatment.

When Scientology's tactics were disclosed last year, no one heard a peep from Congress. Since then, members of Congress from both political parties have treated the IRS as a punching bag. Perhaps news of the $12.5-million settlement finally will prod someone in Washington to ask the agency some tough questions about this one-sided agreement. To most taxpayers, $12.5-million would be a stiff penalty. For the Church of Scientology, it was the small cost of doing business.


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Last updated 16 January 1998
by Chris Owen (