The IRS and Scientology
Date: January 7, 1998
In the closing days of 1997, the controversial Church of Scientology finally paid the Internal Revenue Service $12.5 million as part of a 1993 settlement. (The sect is also embroiled in a dispute with the German government over its religious and tax status.)
Without, of course, passing judgment on the merits of the church's religious values and views, we find that both governments have been understandably cautious in dealing with the church.
Such caution is not unique to the Church of Scientology. In the past 20 years, the IRS has investigated and challenged the tax-exempt status of both the Unification Church, led by the Rev. Sun Myung Moon, and a Protestant group led by the Rev. James and Tammy Faye Bakker; in both instances, the churches were fined for tax violations.
Since its establishment by science fiction author L. Ron Hubbard in 1954, the Church of Scientology has engaged in profit-making business activity, according to the IRS. And Mr. Hubbard and his family, so the IRS determined, have enriched themselves with church funds from the sale of Scientology literature and in the administration of a sacramental initiation called "auditing" - a ritual for which members paid fees to the church on a regular basis. (Mr. Hubbard died in 1986.)
The IRS objected to the fees for "auditing" being filed as tax-exempt donations, even as the church asserted that the procedure was in fact a form of therapy. For good reason, then, the IRS pulled the main church's tax-exempt status in 1967, but not the tax-exemptions of the church branches. Now with the 1997 IRS agreement, church members will be able to deduct on their individual tax returns "auditing" fees as donations. In return, the church has agreed to comply with IRS demands for annual reports on church spending.
The Church of Scientology, which counts among its members such Hollywood stars as John Travolta, Tom Cruise, Alec Baldwin and Nicole Kidman, has $300 million in assets. And, according to a Dec. 30 Wall Street Journal report, between 1988 and 1992, its revenues totaled about $1.1 billion. According to church documents filed with the IRS, the church said it may spend an estimated $114 million for such church projects as a titanium time capsule to hold Mr. Hubbard's "scriptures."
The Constitution, which would seem to generally prohibit the government from determining what is and is not a valid church, nonetheless by implication permits the IRS to determine whether churches abuse their tax-exempt status. This is only fair: After all, taxpayers of all beliefs subsidize the tax-exempts.
And the Scientologists play a kind of hardball not normally associated with a religious organization. After the IRS had challenged the Church of Scientology, the church initiated thousands of frivolous lawsuits against the IRS, including proxy suits disguised as individual complaints. Indeed, the Scientology campaign against legitimate IRS challenges to its nonexempt status constituted outrageous harassment.
Congressional hearings this year focused legitimate criticism on the IRS. And some needed reform has been the result. But the IRS actions regarding the Church of Scientology were warranted. We praise the IRS for its vigilance.