Scientology's (c)(3) Status

1) Four Years Later, Scientology Exemption Still A Hot Topic

There is no veil of secrecy surrounding the Service's 1993 decision to grant the Church of Scientology exemption under section 501(c)(3), says the church's tax lawyer, Monique E. Yingling of Zuckert, Scoutt & Rasenberger, Washington. And some other tax attorneys in this town actually agree.

A former IRS official, who spoke to Tax Analysts solely on background, independently echoed Yingling's comment and recommended that people interested in the case examine the "enormous public record" that is available in the Freedom of Information Reading Room at the IRS national office to see for themselves whether the Service appropriately granted exempt status.

The question of secrecy and intrigue surrounding the Scientology case was resurrected by a March 9, 1997 front-page New York Times story in which reporter Douglas Franz suggested that a 1991 impromptu meeting between church leaders and then-IRS Commissioner Fred T. Goldberg Jr. instigated "a 180-degree turn" in the Service's position, from fighting at every turn Scientology's assertion that it was entitled to exemption to ultimately granting exemption in 1993. The church purchased a full-page ad in the March 19, 1997 Times refuting Franz's assertions that the Scientologists received their exemption in a less-than-above-board manner.

According to Franz's article, two church leaders were in Washington one day in October 1991 and decided to make an unscheduled visit to the IRS national offices where they were permitted to meet with Commissioner Goldberg. As a result of that meeting, the article asserts, the commissioner put together a "negotiating" committee expressly to address the Scientology exemption question.

Two years and two commissioners later, the Church of Scientology was granted section 501(c)(3) status. At the time many exempt organization tax practitioners expressed shock at the outcome of the Service's long-fought battle with Scientology. However, the tax lawyers interviewed for this story demonstrate that reasonable minds can differ on this subject.

"There really is not a veil of secrecy if people were willing to go look at the public record," Yingling stated, adding that "the public record has all of the information about . . . how and why the church qualifies for exemption . . . and it was this public record that the IRS based its decision on."

When asked why the church doesn't release its 1993 closing agreement, Yingling asserted that "the closing agreement had nothing to do with exemption, because if it did the IRS would have to make it public because section 6104 requires that any information having to do with exemption applications and a determination that an entity is exempt has to be a matter of public record." She added that she "can assure" skeptics that the IRS is not violating section 6104 by refusing to release the closing agreement. [Tax Analysts is currently in court seeking to make the Scientology closing agreement public.]

Leonard J. Henzke Jr. of Ginsburg, Feldman, and Bress, Washington, commenting on the impromptu 1991 meeting that apparently had occurred between church leaders and an IRS official, said that person was more likely the chief counsel than the commissioner. But "the Times article made it sound like something was wrong" with holding such a meeting, Henzke said, adding that "there is nothing wrong with getting in to see the chief counsel or with the IRS setting up a committee" to look into a particular taxpayer's case.

The Church of Scientology did receive special treatment from the IRS, but "an enormous case has to be handled specially," he said. "I wish they would do this more often," he stated. As counsel to the United Cancer Council, Henzke said UCC "wanted something like that" to help resolve its disputes with the IRS.

In a full-page advertisement, the Church of Scientology has responded to a front-page New York Times article that chronicled the church's 25-year journey from "tax rebel" to tax-exempt organization.

The ad defends the way the church received its exemption, saying that not only did it not receive favorable treatment but received "especially vigorous treatment, unprecedented in IRS history." The ad also asserts that the church was responsible for a number of reforms at the IRS and gives itself credit for finding flaws in the Taxpayer Bill of Rights and for contributing "to the discovery . . . of computer abuse that could have resulted in $1 billion in incorrect assessments." The New York Times, 3-19-97, p. A17.

The New York Post, which says the ad cost $69,000, discusses the particulars of the ad and the article that produced it. 3-20-97, p. 6.

A Wall Street Journal editorial presents a history of Scientology and discusses the controversial causes it has espoused and how it has fared with the government. The Journal states, "We certainly hope that the Scientologists finally win the respectability they seek, though we note that the Mormons did abandon polygamy and the Jehovah's Witnesses no longer beseech potential converts by setting up loudspeakers on their lawn." The editorial also calls on the IRS to provide more information about why the church was granted exempt status. 3-25-97, p. A18.

Last updated 3 July 1997
by Chris Owen (chriso@lutefisk.demon.co.uk)