FILED t & i I 1. NOVI I 10 No. 581-88 T U.S. CLAIMS COURT IN THE UNITED STATES CLAIMS COURT CHURCH OF SPIRITUAL TECHNOLOGY, Plaintiff V. THE UNITED STATES, Defendant DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACT SHIRLEY D. PETERSON Assistant Attorney General MILDRED L. SEIDMAN GERALD B. LEEDOM DAVID GUSTAFSON Attorneys Department of Justice Washington, D.C. 20044 IN THE UNITED STATES CLAIMS COURT No. 581-88T CHURCH OF SPIRITUAL TECHNOLOGY, Plaintiff V. THE UNITED STATES, Defendant DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACT I. CST'S RELIGION, ITS FOUNDER, AND HIS WRITINGS ---------- 3 II. THE FOUNDING CHURCH CASE ------------------------------- 18 III. THE C.S.C. CASE ---------------------------------------- 21 IV. THE F.B.I. CASE ---------------------------------------- 33 V. CST'S APPARENT CONTINUING CONNECTION TO L. RON HUBBARD AND TO SCIENTOLOGY GENERALLY ------- 39 A. L. Ron Hubbard'5 5tatus --------------------------- 39 B. CST's succession to C.S.C ------------------------- 40 C. Author Services, Inc ------------------------------ 42 D. The Sea Org --------------------------------------- 43 E. Options ------------------------------------------- 47 F. Common personnel ---------------------------------- so G. Contributions ------------------------------------- 61 VI. UNANSWERED QUESTIONS ----------------------------------- 63 VII. ON-SITE DOCUMENT REVIEW -------------------------------- 66 IN THE UNITED STATES CLAIMS COURT No. 581-88T CHURCH OF SPIRITUAL TECHNOLOGY, Plaintiff V. THE UNITED STATES, Defendant DEFENDANT'S PROPOSED FINDINGS OF UNCONTROVERTED FACT For purposes of its motion to dismiss only, the defendant, the United States, hereby proposes that the Court find the facts set forth below. In each proposed finding, defendant cites the supporting evidence from (1) plaintiff's complaint ('Compl."); (2) exhibits ("Ex.") from the administrative record ("AR"), pertinent pages of which are reproduced in the appendix filed herewith ("Govt. App."); and (3) other sources as noted. As the Court is well aware, the administrative record in this case is voluminous. To assist in locating cited passages from AR V The assertions herein are based in part on CST's complaint and on representations CST made to the IRS in the administrative process. For purposes of the instant motion only, the United States assumes them to be true. The United States hereby makes no general admission that CST's assertions are accurate. exhibits, defendant has (1) cited the exhibit by its AR designation (eg., "AR Ex. II-134," which is exhibit 134 appearing in "Part II" of the record), (2) cited the exhibit by another designation (if any) previously used to identify the exhibit "Protest Ex. A-56," indicating that plaintiff submitted the document as Exhibit A-56 to +-he "Protest" it filed with the IRS, which marking still appears on the document), and (3) cited, where possible, sequential page numbers from the record (eg., "AR page I-553," meaning sequential page 553 in "Part I" of the record). In addition, defendant has reproduced in its appendix the exhibits it relies on (except published court opinions) and cites to specific page numbers in that appendix. Throughout these proposed findings, emphasis (by underlining) has been.altered and/or added by defendant, unless otherwise noted. Where italics or underlining appears in the original, it is so noted (by the designation 'sic'). All other underlining has been added by defendant. Use of all capitals--a convention Mr. Hubbard sometimes adopted for emphasis--is presented as it is in the original. 2 I CST'S RELIGION, g/ ITS FOUNDER, AND HIS WRITINRS 1. Plaintiff, the Church of Spiritual Technology ("CST"), is a church of the Scientology religion, which religion was founded by the late L. Ron Hubbard. (Complaint para. 13.) The Government assumes for purposes of this case that Scientology is a "religion," that Scientologists sincerely characterize the writings of L. Ron Hubbard as "scriptures," and that CST is a "church" in the Scientology ilreligion," but takes no affirmative position as to whether those characterizations are appropriate. 3 2. The written words and recorded spoken words of L. Ron Hubbard are regarded by CST (and Scientologists generally) as. being not simply persuasive or influential writings but, rather, as actually being "Scriptures." (Complaint para. 16.) y CST asserts that its principal purpose is to preserve Mr. Hubbardis writings (Complaint paras. 36, 42), so that access to his writings by future generations will not be impeded by the passage of a thousand years (Compl. paras. 44, 47, 48, 49) or by "man-made or natural disasters, especially nuclear war" (Compl. para. 44). See also Founding Church, infra, 188 Ct. Cl. at 501 (@'Hubbard's views, writings, and instructions respecting Scientolocjy are regarded by plaintiff and its members, ministers, and staff as authoritative"). 4 3. L. Ron Hubbard's writings, which CST reveres as Scriptures, include "The organization Executive Course: An Encyclopedia of Scientolocjy Policy" (hereinafter, "OEC"). (This encyclopedia was submitted to the IRS as Exhibits A-53 through A-60 to CST's "Protest." It appears as Exhibits II-131 through II-138 in the administrative record, and is kept in "Box S" thereof.) This multi-volume compilation of Scientology policy includes policy letters and other equivalent documents written by Mr. Hubbard over a period of years. (See also C.S.C., infra, 83 T.C. at 401-402; AR pages 507-509.) This encyclopedia has been compared * * * to the constitution of the Presbyterian Church." (Id. at 463 (citing testimony by an expert witness for C.S.C.); AR page I-601.) 4. Volume 3 of the OEC, entitled "Treasury Division" (AR Ex. II-134, Protest Ex. A-56), includes the following Scientology Scripture passage by Mr. Hubbard (at pages 27-28; Govt. App. 136-137): V Beside myself, only Jack Parkhouse and Julia Lewis Salmen amongst all of us have a proven record of good financing. It might interest you how I do this trick: I disseminate like mad to lots of people and get in lots of money. I don't run up bills if I don't have money. I spend money freely only when it has been made and is in the bank. I don't worr_)@_about wasting money if I have made the money first. I never "plan for emergen- cies." I just make lots of money for the organization. To any financial problem I answer by making money. To any crucial organizational problem, I answer by dissem- inating like mad, improving service and getting in lots of money. I do [sic] now and then throw money away when it's been made and isn't needed. So get smart about money. It's only money. It's made and if you make it, you can have some. If you don't you can't: it won't be there to be had. 4/ Defendant points out that this proposed Finding, like Findings 5 through 15, concerns the fact that the policy letter was published and attributed to Mr. Hubbard. For the present purpose, it is immaterial whether in fact CST or any other Scientology organization consistently followed the "policy" directives reflected in this passage. - 6 - 5. Volume 3 of the OEC, entitled "Treasury Division" (AR Ex. II-134; Protest Ex. A-56), includes the following Scientology Scripture passage by Mr. Hubbard (at page 40; Govt. App. 139): Make lots of money. Spend it frugally. So it gives a tax problem. So what? Your account- ants should be capable of avoiding tax problems. Whether you do or don't have money you will always have a tax problem because governments are crazy. The way to solve tax problems is to have money, not to be broke. Taxes exist only to destroy business. Be impu- dent. Get rich and to hell with them. Governments are just a reactive bank we have to live with for a while. Learn to handle them. But not by refusing to make money or have it. 7 6. Volume 3 of the OEC, entitled "Treasury Division" (AR Ex. II-134; Protest Ex. A-56), includes the following Scientology Scripture passage by Mr. Hubbard (at page 63; Govt. App. 142): As tax departments have never to my knowledge accepted without question the year's return or balance sheet of any [sic] corporation, efforts to get such departments to accept a return or balance sheet by putting in wild solutions avail nothing. The tax people aren't going to accept anything at all anyway ever without challenge. If you are challenged, you better have the REAL facts right there. This doesn't mean one should tell them all the truth in a geyser and q!4sh. The real stable datum in handling tax people is NEVER VOLUNTEER ANY INFORMATION. It does mean one must not tell them or give them false data. It only means that when you give them data you can't back up or report profit you didn't make you will get into severe trouble. 8 7. Volume 3 of the OEC, entitled "Treasury Division" (AR Ex. II-134; Protest Ex. A-56), includes the following Scientology Scripture passage by Mr. Hubbard (at page 66; Govt. App. 145): Now as to TAX, why this is mainly anybody's game of what is a PROFIT. The whole thing is to assign a significance to the figures before the government can. The whole thing is a mess only because arithmetic figures are symbols open to ANY significance. So I normally think of a better significance than the govern- ment can. I always put enough errors on a return to satisfy their bloodsucking appetite and STILL come out zero. The game of accounting is just a game of assign- ing significance to figures. The man with the most imagination wins. BUT there must be correct figures and there must not be gross misassignment of debts as profits or the whole thing won't hang together. Sle This Scientology Scripture passage is also reprinted in the opinion in C.S.C., infra (83 T.C. at 430 n. 30; AR page I-553). 9 8. Volume 3 of the OEC, entitled "Treasury Division' (AR Ex. II-134; Protest Ex. A-56), includes the following Scientology Scripture passage by Mr. Hubbard (at pages 202-203; Govt. App. 146-147): ALL OUTGOING MAIL to attorneys, tax cruds, the alleged government, the Council, etc. AND A FULL RECORD OF EVERY VERBAL CONFERENCE ON SUCH MATTERS must be sent to the Legal Officer * * *. The purpose of the Legal Officer is to help LRH [i.e., L. Ron Hubbard] handle every legal, government, suii, accounting and tax contact or action for the organization and by himself or employed representative, to protect the organization and its people from harm and to bring the greatest possible confusion and loss to its enemies. This purpose can be carried out only if every (sic] piece of mail incoming and outgoing that has to do with legal matters, tax matters, Town and Country planning matters, government matters, solicitor matters of any kind passes through his hands and is fitted by him into the tactics and strategy agreed upon or formulated by the Legal Section. This same passage is reproduced in part in Volume 7 (AR Ex. II-134; Protest Ex. A-60) at 529 (Govt. App. 156) and Volume 1 (AR Ex. II-132; Protest Ex. A-54) at 180. 10 - 9. Volume 7 of the OEC, entitled "Executive Division" (AR Ex. II-138; Protest Ex. A-60), includes the following Scientology Scripture passage by Mr. Hubbard (at page 484; Govt. App. 150): * * * [D]efensive tactics are frowned upon in the Department [of Government Affairs). We are not trying to make the Central Orgs and HCOs "be good'. We are trying to make their reach 'more secure and effective. Only attacks resolve threats. In the face of danger from the Govts or courts there are only two errors one can make: (a) do nothing and (b) defend. The right things to do with any threat are to (1) Find out if we want to play the offered game or not, (2) If not, to derail the offered game with a feint or attack upon the most vulnerable point which can be disclosed in the enemy ranks, (3) Make enough threat or clamor to cause the enemy to quail, (4) Don't try to get any money out of it, (5) Make every attack by us also sell Scientology and (6) Win. If attacked on some vulnerable point by anyone or anything or any organiza- tion, always find or manufacture enough threat against them to cause them to sue for peace. Peace is bought with an exchange of advantage, so make the advantage and then settle. Don't ever defend. Always attack. Don't ever do nothing. Unexpected attacks in the rear of the enemy's front ranks work best. The goal of the Department is to bring the govern- ment and hostile philosophies or societies into a state of complete compliance with the goals of Scientology. This is done by high level ability to control and in its absence by low level ability to overwhelm. Introvert such agencies. Control such agencies. Scientology is the only game on earth where everybody wins. There is no overt in bringing good order. 10. Volume 7 of the OEC, entitled 'Executive Division" (AR Ex. II-138; Protest Exhibit A-60), includes the following Scien- tology Scripture passage by Mr. Hubbard (at page 492; Govt. App. 154): Groups that attack us are to say the least not sane. According to our technology this means they have hidden areas and disreputable facts about them. As soon as we begin to look for these, some of the insanity dissipates. These people who attack have hidden secrets. And hidden crimes. They Are afraid. There.is no doubt in their minds as to our validity or they wouldn't attack so hard at such cost. Society tolerates far worse than we are. So they really believe in us. This hampers their execution of orders--their henchmen really don't share the enthusiasm for the attack for after a bit of investigation it becomes obvious to these henchmen that the attack smells. This impedes follow-through. And when we [sic] investigate, all this recoils on the attacker. He withdraws too hurriedly to be orderly. 12 11. Two volumes at the end of the OEC are designated "Management Series." The second of these (AR Ex. II-140; Protest Ex. A-62), includes the following Scientology Scripture passage by Mr. Hubbard (at page 523; Govt. App. 161): Z/ GOVERNING POLICY The governing policy of finance is to A. MAKE MONEY. B. Buy more money made with allocation for expense (bean theory). C. Do not commit expense beyond future ability to pay. D. Don't ever borrow. E. Know different types of orgs [i.e., Scientology organizations] and what they do. F. Understand money flow lines not only in an org but org to org as customers flow upward. C. Understand EXCHANGE of valuables or service for money (PL Exec Series 3 and 4). H. Know the correct money pools for any given activity. I. Police all lines constantly. J. MAKE MONEY. K. MAKE MORE MONEY. L. MAKE OTHER PEOPLE PRODUCE SO AS TO MAKE MONEY. A small sack of beans will produce a whole field of beans. Allocate only with that in mind and demand money be made. 2/ This Scientolocjy Scripture passage is also reprinted in the opinion in C.S.C., infra (83 T.C. at 422; AR page I-540). 13 - 12. A report prepared for Britain's House of Commons, entitled "Enquiry into the Practice and Effects of Scientology" (December 21, 1971) (Deft. Ex. A; Govt. App. 207-216), includes in its appendices reprints of various policy letters, purportedly written by Mr. Hubbard, of the same sort that appear in the OEC. The IRS was aware of this report at least as early as 1974. (See C.S.C., infra, 83 T.C. at 393.) One of those reprinted policy letters includes the following Scientology Scripture passage in which Mr. Hubbard stated (Govt. App. 209): This is the correct procedure [when being attacked]: (1) Spot who is attacking us. (2) Start Investigating them promptly for FELONIES or worse using own professionals, not outside agencies. (3) Double curve our reply by saying we welcome an investigation of them. (4) Start feeding lurid, blood sex crime actual evidence on the attackers to the press. Don't ever [sic] tamely submit to an investigation of us. Make it rough, rough on attackers all the way. You can get "reasonable about it" and lose. Sure we break no laws. Sure we have nothing to hide. BUT attackers are simply an anti-Scientology propaganda [sic] agency so far as we are concerned. They have proven they want no facts and will only lie.no matter what they discover. So BANISH all ideas that any fair hearing is intended and start our attack with their first breath. Never talk about us--only them. Use their [sic] blood, sex, crime to get headlines. Don't use us. - 14 13. The policy letter quoted in Finding 12, supra, does not appear in the OEC (to the best of defendant's knowledge). Instead, a policy letter with the same date and title appears in Volume 7 of the OEC (AR Ex. II-138; Protest Ex. A-60), states that it "Cancels all Sec Eds and Pol Ltrs to the contrary," and reads in part as follows (at 490; Govt. App. 152): ADVOCATE TOTAL FREEDOM That is the policy--advocate total freedom. This is also easiest to do. It is easier than fighting Parliaments or building up cases against people who attack us. is 14. One of the policy letters in the "Enquiry" report appendices (see Finding 12, supra) includes the following Scientology Scripture passage, in which Mr. Hubbard stated (Govt. App. 212): The mechanism employed is very straightforward. We. never use the data to threaten to expose. We simply collect it and expose. - Experience with the [Public Investigation] section will show that very sordid motives lie behind such attacks and that individuals of the attacking groups have a very great deal to hide. 16 15. Also in the appendices to the "Enquiry' report (see Finding 12, supra) is an article by L. Ron Hubbard entitled "Critics of Scientology," published in the Scientology magazine Certainty. That article includes the following Scientology Scripture passage in which Mr. Hubbard stated (Govt. App. 216): Never discuss Scientology [sic] with the critic. Just discuss his or her crimes, known and unknown. And act completely confident that those crimes exist. Because they do. 17 .I I THE FOUNDING CHURCH CASE 16. In 1969 the Court of Claims decided Founding Church of Scientol M v. United States, 188 Ct. Cl. 490, 412 F. 2d 1197 (1969) (hereinafter, "Founding Church"). That case, which involved the years 1956 through 1959, concerned the parent church of the Scientology religion and, inter alia, its relationship to L. Ron Hubbard. The plaintiff was held to be not exempt from federal income taxes. Defendant points out that this proposed finding (like subse- quent Findings 17-28 and 33) concerns only the fact that a court found certain assertions to be true. Whether or not the findings were correct is immaterial for the present purpose. The Founding Church opinion,(minus the appendix not printed in F. 2d) appears in the administrative record as AR Ex. I-62, beginning at AR page I-700. However, because the opinion is published, defendant has not put this portion of the record in its appendix. 17. In Founding Church (188 Ct. Cl. at 498, 412 F. 2d at 1201; AR page I-704), the Claims Court stated: During the years in issue these other percentages, fees, and commissions, so far as the record shows, were apparently received or receivable [from Scientology organizations) by Hubbard for his personal use. Such an arrangement suggests a franchise network for private profit and, in turn, casts doubt upon the propriety of the payments by plaintiff to Hubbard and the members of his family. The fact that Hubbard was the recipient of income from plaintiff in the form of royalties and commissions likewise occasions an inference of personal gain. 19 18. In Founding Church (188 Ct. Cl. at 498-499, 412 F. 2d at 1201; AR page I-1201), the Claims Court stated: Not only can these payments [i.e., "payments made to Hubbard and his family in the nature of loans, reim- bursements for expenditures in plaintiff's behalf, for expenses, and other purposes"), in the absence of explanation, be properly attributable to the individuals as income but the logical inference can be drawn that these payments were disguised and unjustified distributions of plaintiff's earnings. What emerges from these facts is the inference that the Hubbard family was entitled to make ready personal use of the [Founding Church's) corporate earnings. 20 THE C.S.C. CASE 19. In 1984, the Tax Court decided Church of Scientology of California v. Commissioner, 83 T.C. 381, aff'd 823 F. 2d 1310 (9th Cir. 1987), cert. denied, 108 S. Ct. 1752 (1988) (hereinafter, "C.S.C."). The case concerned the years 1970 through 1972 and was tried over a period of a year beginning November 1980 (see 83 T.C. at 392). That case concerned the "Mother Church" of the Scien- tology religion. The petitioner therein was held to be not exempt from federal income taxes. 2/ The Tax Court stated (83 T.C. at 443; AR page I-572): We hold that petitioner [C.S.C.] does not qualify for exemption from taxation under sections 501(a) and 501(c)(3) because it is operated for a substantial commercial purpose and because its net earnings benefit L. Ron Hubbard, his family, and OTC, a private non- charitable corporation controlled by key Scientology officials. Additionally, we hold that petitioner is not entitled to tax-exempt status because it has violated well-defined standards of public policy by conspiring to prevent the IRS from assessing and collecting taxes due from petitioner and affiliated Scientology churches. The C.S.C. opinion appears in the administrative record as AR Ex. 1-61, I;eg-inning at AR page I-478. However, because the opinion is published, defendant has not put this portion of the record in its appendix. - 21 - 20. In C.S.C. (83 T.C. at 389, 492, 495, 499; AR pages I-488 to I-490, I-645 to I-646, I-650, I-656), the Tax Court stated: L. Ron Hubbard officially resigned his position as executive head of the California and other churches of Scientology in 1966. Despite his official resignation, various charts of petitioner [C.S.C.] depicting manage- ment functions during the docketed years continued to place him in the top position. He also held the rank of Commodore, the highest rank in the Sea Organization, which was an elite fraternity of Scientologists. He kept control over the California Church policy by authoring numerous policy letters and by allowing others to go out in his behalf. He also wrote other types of policy directive including Flag Orders, L. Ron Hubbard Executive Directives, and orders of the Day. He made important decisions affecting Church administration, transferring "U.S. Pubs" from the Denmark Church to ASHO and disbanding the Executive Council Worldwide which had overseen the day-to-day operations of the Church. He supervised the activities of the Franchise Office. Staff consulted with him before inaugurating major plans and whenever an operation of the Church was foundering. L. Ron Hubbard's control over petitioner's finan- cial affairs was particularly notable and was long standing. In the years immediately preceding the taxable years [1970-1972], L. Ron Hubbard was a signa- tory on all churches of Scientology bank accounts including petitioner's. His approval was required for all financial planning. He was the sole "trustee" of a major Scientology fund into which petitioner made substantial payments. He decided to open Swiss bank accounts for petitioner and to put them in the name of OTC. He sent a Flag executive to AOLA to revamp its financial operations. He authorized -the purchase of a ranch in Ensenada, Mexico, and wrote a check for $80,000 on one of petitioner's Zurich accounts for its purchase. His control continued during the docketed years. He remained a signatory on petitioner's bank accounts including the OTC accounts. His approval was required for financial planning. He authorized the removal of huge sums of money from petitioner's Swiss bank accounts maintained in the name of OTC. 22 During the tax years at issue, the obvious indicia of benefit to L. Ron Hubbard and his family include salaries, directors fees, management fees, complete support of the family, and royalties; while covert indicia of benefit include repayment of alleged debt in unspecified amounts and unfettered control over millions of dollars in funds purportedly belonging to OTC and the United States Churches of Scientolgy Trust. Probably the most covert form of compensation paid to L. Ron Hubbard was tithes (or a percentage of gross income) which petitioner and other Scientology organizations routed to him in the guise of "Founding Debt Payments." [P]robably the most blatant source of covert inurement to L. Ron Hubbard in the present case is the complete control that he exercised over the millions of dollars transferred to OTC and the United States Churches of Scientology Trust. 23 21. In C.S.C. (83 T.C. at 436-437; AR page I-562), the Tax Court stated: In the spring of 1975, Guardian Office personnel engaged in a project to falsify petitioner's financial records. The project was undertaken in anticipation of an IRS audit. 24 22. In C.S.C. (83 T.C. at 512; AR page I-678), the Tax Court stated: * * * Kreiner (C.S.C.'s chief legal officer] prepared applications for exemption for several Scientology missions. Statements on the application form about the mission's relationship to the United Kingdom Church were misleading. 25 23. In C.S.C. (83 T.C. at 499, 514; AR page I-656, I-679), the Tax Court stated: Petitio ner asserts that HCO PL September 7, 1972 [one of Mr. Hubbard's policy letters, reproduced in 83 T.C. at 497-498] was canceled two days later by another policy letter. However, the weight of the evidence clearly indicates that HCO PL September 7, 1972, was adhered to long after its alleged cancellation. * * * Petitioner notes the following disclaimer published in the front of each OEC volume * * *. * * * Here, despite its written disclaimer, petitioner has clearly manifested its adoption of the policy letters in the OEC series by its conduct. 26 24. In C.S.C. (83 T.C. at 395, 439, 470; AR pages I-499, I-565, I-613), the Tax Court stated: On most occasions when the subject arose, petitioner [C.S.C.] misled respondent [the IRS] about the legal status of the United Kingdom Church. Throughout most of the course of the conspiracy, the California Church knowingly concealed the status of the United Kingdom Church as an operating branch of petitioner. * * * * * * Lewis Hubbard [an IRS attorney, apparently un- related to L. Ron Hubbard] credibly testified that at the time of the audit, he believed that the United Kingdom Church was only nominally connected to peti- tioner and that it had de facto independence. Certainly the Church did everything in its power to present this false picture or, what is worse, to hide the connection altogether. 27 - 25. In C.S.C. (83 T.C. at 399, 430, 438; AR pages I-504, I-553, I-563 to I-564), the Tax Court stated: OTC [Operation Transport Corp., Ltd.] was a sham corporation controlled by L. Ron Hubbard and petitioner [C.S.C.]. Its board of directors lacked bona fides. In the same year [1969], top officials on petitioner's staff in the FBO network grew concerned that petitioner's large payments to OTC, a foreign corporation not holding tax-exempt status, would jeopardize petitioner's tax-exempt status. To disguise these payments as debt repayment and to conceal the OTC sham, a cover story was developed. IO/ 20/ This scheme draws on L. Ron Hubbard's advice for handling tax matters set forth in a policy letter dated June 25, 1967. [See Findings 6-7, supra.] During the audit [of C.S.C.] and the ensuing negotiations, petitioner repeatedly represented that OTC was a separate corporation from petitioner. * * * All of these representations were false. OTC was in form, but not in fact, a separate entity from petitioner. We do not credit petitioner's story that OTC was independent. It was a sham corporation controlled by L. Ron Hubbard. 28 - 26. In C.S.C. (83 T.d. at 422-423, 477; AR pages I-540 to I-541, I-623), the Tax Court stated: Petitioner (C.S.C.] often used business terminology to describe its operations. Churches were referred to as "orgs.' Church missions were called "franchises' until 1971 when their designation in the United States was officially changed to mission. However, even after the name change, petitioner continued to refer to the administrator of the missions as the Franchise Officer. Fees for auditing were called "prices" rather than "fixed donations," and petitioner frequently said its services were "purchased," "bought,' or "sold" rather than lidonated," "offered," or "contributed." * * * Even during the trial of this case, the testimony of petitioner's church witnesses was heavily punctuated with business terminology. [I]t is clear that the purpose o:t these promotional activities was not just to spread religion but to make money. 29 27. In C..S..C.. (83 T.C. at 429, 430, 432, 433, 435-436, 505, !506; AR pages I-551 to I-562, I-666 to I-668), the Tax Court - stated: Conspiracy (sic] Petitioner [C.S.C.], its agents, and others will- fully and knowingly conspired to defraud the United States by impairing, obstructing, and defeating the lawful functions of the IRS in the determination, assessment, and collection of income taxes due from petitioner and from other Scientology organizations and officials. The conspiracy began in 1969 and continued until approximately July 7, 1977, when the FBI, pursuant to a warrant, searched petitioner's premises for evi- dence of the conspiracy and related crimes. Prior to, and during the course of the conspiracy, L. Ron Hubbard issued policy letters and directives depicting the IRS as a danger to Scientology, and threatening to make the IRS "swim in circles." During 1969, personnel in petitioner's FBO network corresponded about plans to protect petitioner's tax- exempt status by forging records to conceal petitioner's relationship with OTC. Two confidential orders formu- lated by petitioner's Guardian Office in 1972 and 1974, respectively, outlined plans to thwart IRS investiga- tions into the tax status of churches of Scientology by burglarizing Government offices and stealing Government documents. Reports sent to petitioner's Guardian Office describe compliance with the confidential Guardian Order issued in 1974. During the docketed years, petitioner advocated and practiced the use of obstructionist tactics to thwart IRS investigations of petitioner and affiliated churches. In 1970,'petitioner's tax returns for the taxable year 1964 through 1967 were under audit. In June or July of that year, Martin Greenberg, the Church's accountant, told an assembled group of Scien- tologists that he purposely made the audit difficult. He said he gave the examiner boxes of original records, disbursement vouchers, and invoices in no semblance of order, with the intent of so hopelessly overwhelming and confusing the examiner that he would be forced to give - 30 - up the examination and accept petitioner's version of the facts. In April 1972, Mr. Greenberg instructed a member of the financial staff at an affiliated Church of Scientology to use similar tactics if IRS agents ever came to her church to examine records. During and after the docketed years, petitioner's Guardian Offices in the United States and the United Kingdom planned and executed a scheme to infiltrate the IRS, seize records pertaining to Scientology-related tax matters pending before the IRS, and conceal petitioner's connection to these covert, illegal activities. During this period, the highest ranking Guardian was Mary Sue Hubbard who held the position Commodore staff Guardian. Pursuant to Guardian Order 1361, the IRS offices in Washington, D.C., were burglarized, and documents relating to petitioner and other Scientology churches were taken and forwarded to petitioner's Guardian Office. At one point, Scientology operatives had difficulty gaining access to IRS intelligence files. They tried to solve this problem by having petitioner's attorney, Joel Kreiner, a witness in this case, make a freedom of information request for these documents believing the request would lead the IRS to place the files in a central location for processing where they would be more accessible. * * * On December 11, 1979, several ranking officials in petitioner's hierarchy were convicted in the U.S. District Court for the District of Columbia of conspir- acy to obstruct justice and to obstruct a criminal investigation in violation of 18 U.S.C. section 371. They were Mary Sue Hubbard, the founder's wife and second in the executive chain-of-command during the docketed years; Henning Heldt, petitioner's vice- president and Deputy Guardian Finance during the dock- eted years; Duke Snider, petitioner's president from late 1975 through May 10, 1976, and USGO official; Gregory Willardson, a USGO intelligence official in the post-docketed years; and Richard Weigand, also a USGO intelligence official in the post-docketed years. on the same day, Mitchell Hermann, a.k.a. Mike Cooper, a Guardian official employed by the Church of Scientology - 31 - in the District of Columbia, was convicted of conspiring to steal Government documents including ones pertaining to the 1971-74 audit. A year later, on December 19, 1980, Jane Kember and Morris Budlong were convicted in the U.S. District Court for the District of Columbia of burglarizing the Exempt Organization Division of the National Office of the IRS on three occasions in 1976 while the 1971-74 audit was in progress. Jane Kember, the Guardian Worldwide, was the highest ranking official in the United Kingdom Church during the docketed years. Morris Budlong was an official in the Guardian Office Worldwide in the post-docketed years. In pursuit of the conspiracy, petitioner filed false tax returns, burglarized IRS offices, stole IRS documents, and harassed, delayed, and obstructed IRS agents who tried to audit the Church's records. Peti- tioner gave false information to, and concealed relevant information from, the IRS about its corporate structure and relationship to OTC. In the end, Jane Kember, the Guardian Worldwide, acting just under L. Ron and Mary Sue Hubbard in petitioner's hierarchy, was convicted of burglarizing the offices of respondent's Exempt Organi- zations Division on three occasions in 1976. The burglaries occurred while an extensive audit of peti- tioner's records was in progress. Furthermore, Mary Sue Hubbard, Duke Snider, and Henning Heldt were convicted of conspiring to obstruct justice. Their convictions in part rested on their efforts to conceal petitioner's connection to burglaries of IRS offices * * *. * * * Church officials at the highest level of the hierarchy, not just ordinary Church members, partici- pated in the conspiracy. Indeed, some high Church officials were finally convicted for their illegal activities. Three held top-ranking positions in peti- tioner's hierarchy during the docketed years and.four others held important positions in petitioner's Guardian Offices in later years. At least four of petitioner's branch churches were affected by the conspiracy. There were plans to manufacture'and falsify records at Flag and AOLA. Also officials at Flag and the Guardian 'Offices in the United Kingdom and United States spear- headed the conspiracy. The conspiratorial plan knew no geographic boundaries. Guardian Order 1361 called for infiltrating and stealing documents from IRS offices in London, Los Angeles, and Washington, D.C. - 32 - IV THE F.B.I. CASE 28. In Founding Church of Scientology of Washington, D.C. v. William H. Webster, Director of the Federal Bureau of Investiga@- Lion, 802 F. 2d 1448 (D.C. Cir. 1986) (hereinafter, "the F.B.I. 4::ase"), the United States Court of Appeals for the D.C. Circuit affirmed the District Court's July 1985 dismissal of the Founding Church's complaint, on the grounds that L. Ron Hubbard, who had failed to appear to be deposed, was the Founding Church's managing agent. The D.C. Circuit's opinion included the following: L. Ron Hubbard resigned from his official position as Executive Director of Scientology Churches in 1966 * * *. The Government offered abundant evidence in the District Court, however, that Hubbard played a uniquely prominent role within Scientology and various affiliated organizations from 1966 until the early 1980's. * * * From evidence adduced below, Hubbard appears to have maintained control in administrative matters through high positions in such entities as the Sea Organization Indeed, uncontested declarations before the District Court leave little doubt about either the ecclesiastical or administrative dimensions of Hubbard's authority during the period from 1966 through 1982. * * * [802 F. 2d at 1453.] Abundant evidence supports the proposition that Hubbard continued in his de facto position as head of the Church. * * * [Id. at 1454.] * * * So far as we-can discern, the record reveals no evidence that Hubbard intended to end his relationship with Scientology, but only that he wanted, in his unfettered discretion, to determine whether and how to continue that relationship. Ultimate control, we have no doubt, he possessed until his death. * * * Hubbard continued through 1984 not only as the potential leader of the Scientology organization but as the actual leader. [Id. at 1456.] - 33 29. Among the evidence relied on by the Court in the F.B.I. case (see 802 F. 2d at 1453) was an August 1984 declaration of Laurel Sullivan stating in part (AR Ex. I-32; AR pages I-292 to I-301; Govt. App. 40-49): IO/ 10. At all times from 1967, to November 21, 1981, L. Ron Hubbard could and did assume direct and complete control over the major operations, management and administration of the church of Scientology and organ- izations related directly or indirectly to the Church * * *. At times this control was directly exercised, and at times it was more relaxed and exercised through others but it existed absolutely. Throughout this period of time, substantial sums of money, running in the millions of dollars, collected by instrumentalities of the Church were directly controlled by L. Ron Hubbard, and funds were remitted directly for his personal use. 11. I am aware that, on numerous occasions, the Church of Scientology, and indeed L. Ron Hubbard himself, commonly stated in public that L. Ron Hubbard had resigned from conducting the management of all Scientology-related organizations and no longer influenced or controlled the management of these organizations. I participated in the preparation of such statements. These statements were wholly and completely untrue. 16. In 1980 and 1981, I was assigned to lead the "Mission Corporate Category Sort-Out" project. The purpose of this project was to restructure all Church-related entities in a way that would make it clear that L. Ron Hubbard was not the alter ego of Scientology and in control of all Scientology organizations. The structure I was to establish was also intended to facilitate the funneling of Scientology funds to L. Ron Hubbard to avoid impairing the tax-exempt status of the Church due to the distribution of Church funds for Mr. Hubbard's personal benefit. LO/ Defendant points out that this proposed finding (like subsequent Findings 30-31 and 33-34) concerns only the fact that such testimony was given, not whether it was correct. - 34 - Another goal of this project was to insulate Mr. Hubbard from legal process by creating the impression that Mr. Hubbard was no longer associated with the Church. 17. Numerous proposals for this restructuring were developed and discussed by high officials of the Church. Legal advice was also sought to ascertain whether the restructuring could be accomplished legally. The project dragged on for longer than necessary because of a disagreement I had with David Miscavige. I was unwilling to structure the Church in a fashion whereby L. Ron Hubbard could continue to assume control at any moment. I determined that for L. Ron Hubbard's own safety he should sever all controls. Miscavige insisted that L. Ron Hubbard be able to maintain control. Therefore, Mission Corporate Category Sort-out was disbanded and Mary Sue Hubbard removed, and Terry Gamboa [see Finding 42, infra] and Norman Starkey hired new lawyers on L. Ron Hubbard's instruction and they fashioned the structure in place today. 19. I believe that L. Ron Hubbard is still in control of the Church of Scientology based on reports that I have recently received from individuals still affiliated with the Church. 35 30. Among the evidence relied on by the Court in the F.B.I. case (see 802 E. 2d at 1454) was an August 1984 declaration of Y'.ima Douglas stating in part (AR Ex. I-33; AR pages I-303 to I-308; Govt. App. 50-55): S. I have been actively involved in a variety of matters relating to the various organizations which comprise the Church of Scientology. Regardless of its legal or corporate structure, the Church is one entity, an umbrella which encompasses a number of organizations, among which is the Church of Scientology of California. 6. As a result of my association with the Church of Scientology, I know that L. Ron Hubbard exercised almost complete control over Church activities during the period of my affiliation with the Church. In fact, the Church is considered and treated by its officials and members as one organization, notwithstanding the number of corporations and entities the Church has established to provide a contrary impression, and L. Ron Hubbard exercises complete control over the entire organization. 36 31. Among the evidence relied on by the Court in the F.B.I. case (see 802 F. 2d at 1454) was a September 1984 declaration of Gerald Armstrong stating in part (AR Ex. I-33; AR pages 1-310 to I-315; Govt. App. 56-61): 3. On or about September 28, 1980, a meeting was held at the Cedars Complex at Los Angeles, California, one of the corporate headquarters of the Church of Scientology of California (CSC). * * * Ms. Sullivan was then in charge of a special mission, called the "Mission Corporate Category Sort-Out" (MCCS). The purpose of MCCS was to restructure the Church of Scientology and, by so doing, conceal L. Ron Hubbard's control of the Church of Scientology and develop strategies to effectuate actual control of Scientology by Mr. Hubbard without his incurring legal responsibility for the activities of the Church of Scientology. Dick Sullivan, a junior executive of the MCCS mission, pursuant to orders, tape recorded the meeting. * * * 4. At the meeting, the following exchange took place relating to the corporate structure of the Church of Scientology and Mr. Hubbard's position within the structure. This exchange was tape recorded with the knowledge and assent of all present. L.S. (Laurel Sullivan] "There is no need for them to be the actual Board of Directors." C.P. [Charles Parselle) "* * * The only reason it's worked so long without that occurring is because everyone has effectively been bound by the authority of LRH and have ignored corporate lines.' (Emphasis supplied) 6. Mr. Hubbard received millions of dollars through a dummy corporation, Religious Research Foundation (R.R.E.), specifically set up to funnel money to him which should have been paid to CSC by foreign customers paying for "Flag" services. "Flag" is part of CSC. At a strategy meeting on September 29, 1980, held by several high ranking senior executives of the Church [t]he exchange was as follows: - 37 - CP: Fortunately for us, RRF wasn't incorporated until 1973 and we are now litigating 1972. So, I haven't really tried to sort this one out but it obviously is the classic case (loud laugh) of inurement, if not fraud." (Several laughs.) LS: "Well, put." Speaker Unidentified: "It's all privileged." DS: "The tape recorder is going here, Charles." 38 v CST'S APPARENT CONTINUING CONNECTION TO L. RON HUBBARD AND TO SCIENTOLOGY GENERALLY A. L. Ron Hubbard's status 32. According to CST's own articles of incorporation, its purpose is to "practice * * * the religion of Scientology, as the same has been developed and may be further developed by L. Ron Hubbard * * *." (Complaint para. 13; AR Ex. I-3; AR page I-16; Govt. App. 2.) According to its by-laws, CST's "Trustees, Direc- tors, Officers and agents shall be bound by and shall observe the foregoing to the end that the operations and activ- ities of this corporation shall support and maintain the Church as a church of Scientology in compliance with the Scriptures * * * [i.e.,] the writings and recorded spoken words of L. Ron Hubbard with respect to Scientology *-* *." (AR Ex. I-4; AR pages I-22, 1-23; Govt. App. B-9.) Thus, as long as he was alive, L. Ron Hubbard had the power to make authoritative pronouncements and c)rders, which CST felt itself religiously bound to obey. 39 B. CST's succession to C.S.C. 33. In its decision in Church of Scientology of California v. Armstrong (AR Ex. I-35; AR pages I-334 to I-336; Govt. App. 79-81), the Superior Court for Los Angeles County found that in 1981--the year before CST's formation--C.S.C. was enagaged in archival activities in connection with the writings of L. Ron Hubbard. There was a C.S.C. employee or office referred to as "Controller Archives." One C.S.C. employee (the defendant in Armstrong) was referred to as the "Hubbard Archivist." CST, the plaintiff here, was formed the next year, with its principal purpose being to perform archival activities in connection with the writings of L. Ron Hubbard (see Complaint paras. 13-15), and as late as 1987 CST referred to itself as "LRH Archivest' in recruiting literature. (AR Ex. VII-898; Govt. App. 202.) Accord- ing to a portion of the transcript in the Armstrong case (AR Ex. I-65; AR page I-714; Govt. App. 107), CST held at least some of the documents previously obtained by the C.S.C. archivists. CST explains its relationship to the hierarchical church as follows (AR Ex. 1-17; AR page I-101; Govt. App. 84): [T]he activities of this Church in respect of the preservation of the scriptures is [sic] known to, understood by and supported by the ierarchy of the Church, as activities which are both functionally integral to and essential to the accomplishment of the religious purposes of the hierarchical Church and to the assurance that the religion of Scientology will be disseminated and practiced forever. Additionally, this organization will not accept as a staff member any Scientologist who is not in good standing with the hierarchical church. Finally, it is the expectation of 40 - this church that the hierarchical Church will recognize ministers ordained by this church as ordained ministers of Scientology and will recognize the auditing, train- ing, marriages, etc., conducted by this church and its ministers. 41 C. Author Services, Inc. 34. In the Armstropg case, a witness testified that as late as 1982 L. Ron Hubbard maintained control of C.S.C. through (inter alia) an entity known as Author Services, Inc. ("A.S.I."), a corporation established to handle Mr. Hubbard's personal affairs, which was headed by a person (David Miscavige) who was simul- taneously running both C.S.C. and ASI. (AR Ex. I-31 at 21-25; AR pages I-267 to I-271; Govt. App. 35-39.) 42 D. The Sea Org 35. L. Ron Hubbard founded a Scientology religious order known as the Sea Organization or "Sea Org," of which he was designated the one and only "Commodore" until his death (and "Admiral" thereafter). (For CST's general description of the Sea Org, see pages B-5 to B-7 of its protest (AR Ex. II-76; AR pages II-136 to II-140; Govt. App. 113-117).) The intensity of onels commitment to the Sea Org may be seen from the duration of that commitment: while it is not perpetual, it does last for "the next billion years" (AR Ex. VII-898; Govt. App. 203). 43 36. Each member of CST's staff is a member of the Sea Org. Sea Org members also staff the Scientology organizations that CST admits are in the hierarchical church (of which CST asserts it is independent). (AR Ex. I-76;.AR pages I-748 to I-749; Govt. App. 110A to 110B.) Thus, CST, the Scientology parent church, and other important churches in the Scientology hierarchy are known as "Sea Org churches." (AR Ex. II-76, page B-7; AR page II-140; Govt. App. 117). The large group of persons who serve as leaders of Sea Org churches typically have been previously employed by other such churches (including C.S.C.), and many have been members of the Commodore's Messenger Org (see Finding 37, infra). (AR Ex. II-76, page B-69; AR page II-202; Govt. App. 126.) 44 37. L. Ron Hubbard designated members of the hierarchical church to act as "Commodore's Messengers." This group, known as the Commodore's Messenger Org, was a part of C.S.C. and is now a part of Church of Scientology International ("C.S.I."), the parent church of the reorganized Scientology religion. (AR Ex. I-50; AR pages I-432 to I-433;.Govt. App. 104-105.) CST describes this organization as follows: The Commodore's Messenger Organization Interna- tional of CSI ("CMO INT") also was established in 1979. CMO INT operates to assist the WDC ["Watchdog Commit- tee"] by providing information to WDC through indepen- dent observers and aides in order to ensure that ecclesiastical management functions are being effectively carried out in accordance with Scientology Scripture and tenets. The CMO INT thus operates in an advisory and correctional capacity as an autonomous unti that reports to the Watchdog Committee. Its specific function is to assure that lower ecclesiastical levels of the church are executing international ecclesiastical directives. * * * (AR Ex. II-76, page B-20; AR page II-153; Govt. App. 118. CST further described the Commodore's Messenger Org at pages B-24 to B-25 of its protest (AR Ex. II-76; AR page II-157 to II-158; Govt. App. 122-123).) - 45 38. Flag Order No. 3729 was issued by the Sea Org, directing that these "Commodore's Messengers" were to be treated as authori- tatively speaking and acting for L. Ron Hubbard himself. (AR Ex. I-50; AR pages I-432 to I-433; Govt. App. 104-105.) In another context, CST stated that its operations are governed,by Sea Org Flag Orders, which it obeys. (AR Ex. VII-687; Govt. App. 200-201.) 46 40. CST understands its option on the marks and Advanced ,Technology to include the following right (AR Ex. 1-46, page S; AR page I-393; Govt. App. 96): II]n the event it is determined that Religious Technology Center is not exempt, this corporation will exercise its options and acquire the marks and materials. CST further explains this aspect of the situation as follows (AR Ex. I-46; AR page I-395, item 5; Govt. App. 98): We recognize that the ownership by this organization of the two options, in light of the provisions thereof and of the assignments by Mr. Hubbard to Religious Technology Center, makes the exempt status of Religious Technology Center a matter of concern to this organization. Specifically, this is because the assignments by Mr. Hubbard make it clear that Religious Technology Center must qualify as an exempt organization; and, if it does not, that this organization will be obliged to exercise its options. 48 41. In the meantime, while RTC purportedly continues to own title to the marks and Advanced Techonolgy, CST uses this property without giving RTC any compensation. (AR Ex. I-69; AR page I-723, para. 3; Govt. App. 110.) 49 F. Common personnel 42. CST identified Terri Gamboa as one of its Trustees. (AR Ex. I-41; AR page I-369; Govt App. 88; AR Exs. VII-578, -580, -581; Govt. App. 193-199.) (As to the powers of CST's trustees, see its by-laws (Ex. I-4, page 10; AR page I-30; Govt. App. 10).) Gamboa was also, at the sometime, a Director, the President, and a shareholder of A.S.I. (see Finding 34, supra). (AR Ex. V-534, page 24; AR page V-26; Govt. App. 166.) Formerly, Gamboa had been an employee of C.S.C. and of L. Ron Hubbard personally. Gamboa's employment at C.S.C. was from January 1968 through December 1980--a period that overlapped with C.S.C.'s criminal conspiracy (see Finding 27, supra). (AR. Ex. I-49; AR page I-429; Govt. App. 101.) so 43. CST identified Gregory Wilhere as one of its Trustees. (AR Ex. I-41; AR page I-369; Govt App. 88; AR Ex. VII-578, -580; (3ovt. App. 193-199.) (As to the powers of CST's trustees, see its by-laws (Ex. I-4, page 10; AR page I-30; Govt. App. 10).) Wilhere was also formerly an employee of the Founding Church, C.S.C., Church of Scientology Flag Service Org, Inc., and an Australian Scientology organization. Wilhere's employment at C.S.C. was from June 1975 through December 1981--a period that overlapped with 6...S.C.'s criminal conspiracy (see Finding 27, supra). During the time he served as a trustee of CST he also was an employee of ASI. (AR Ex. I-49; AR page 1-428; Govt. App. 100.) 44. CST identified Marion Meisler as one of its Trustees. (AR Ex. I-41; AR page I-369; Govt App. 88; AR Ex. VII-578, -580, -581; Govt. App. 193-199.) (As to the powers of CST's trustees, see its by-laws (Ex. I-4, page 10; AR page I-30; Govt. App. 10).) Meisler was also at the same time an employee of ASI and had previously been employed by C.S.C., a United Kingdom Scientology organization, an Australian Scientology organization, C.S.I., and R.T.C. (AR Ex. I-49; AR page I-429; Govt. App. 101.) 52 45. CST identified Lyman Spurlock as its President, one of i.ts directors, and one of its Trustees. (AR Ex. I-41; AR page 1-369; Govt App. 88; AR Ex. VII-578, -580, -581; Govt. App. 193-199.) (As to the powers of CST's trustees and directors, -laws (Ex see its by I-4, pages 10, 18-22; AR pages I-30, I-38 to 'I-42; Govt. App. 10).) Spurlock was also at the same time a -trustee of RTC (AR Ex. I-46, page 3; AR page I-388; Govt. App. 91) and ASI (AR Ex. II-GGG; AR pages II-1515 to II-1516; Govt. kpp. 127-128), and had previously been an employee of C.S.C. and L. Ron Hubbard personally. (AR Ex. 1-49; AR page I-430; Govt. App. 102.) Although CST has not stated that Spurlock was ever formally affiliated with C.S.I., the administrative record shows the following: An HCO policy letter dated 11 June 1981, revised 18 March 1982 (Protest Ex. H-9; AR Ex. II-301; AR page II-2146; Govt. App. 129), is signed as follows on page 6 thereof (Govt. App. 134): LIJ THE BOARD OF DIRECTORS of the CHURCH OF SCIENTOLOGY INTERNATIONAL Assisted by Lyman Spurlock Llj The sequential numbering of the pages of the AR volume con- taining this exhibit is out of order after page 2042, although the pages themselves appear in proper order in the volume. Defendant apologizes for the confusion. - 53 46. CST identified Dan Przybylski its Vice-President and as one of its directors (AR Ex. I-41; AR page I-369; Govt App. 88; AR Ex. VII-578, -580, -581; Govt. App. 193-199.) (As to the powers of CST's directors see its by-laws (Ex. I-4, pages 18-20; AR pages I-38 to I-40; Govt. App. 18-20).) Przybylski had also previously been an employee of various Scientology organizations, including C.S.C., C.S.I., and R.T.C. Przybylski's employment at C.S.C. was from December 1975 through September 1978--a period that overlapped with C.S.C.'s criminal conspiracy (see Finding 27, supra). (AR Ex. I-49; AR page I-431; Govt. Ap .p. 103.) 54 47. CST identified Leo Johnson as its Secretary. (AR Ex. I-41; AR page I-369; Govt App. 88; AR Ex. VII-578, -580, -581; Govt. App. 193-199.) Johnson had previously been an employee of C.S.C. from June 1973 through February 1982--a period that overlapped with C.S.C.'s criminal conspiracy (see Finding 27, supra). (AR Ex. I-49; AR page I-431; Govt. App. 103.) 55 48. CST identified Nancy O'Meara as its Treasurer and as one of its Directors (AR Ex. I-41; AR page 1-369; Govt App. 88; AR Ex. VII-578, -580, -581; Govt. App. 193-199.) (As to the powers of CST's directors see its by-laws (Ex. I-4, pages 18-20; AR pages I-38 to I-40; Govt. App. 18-20).) O'Meara had also pre- viously been an employee of various Scientolocjy organizations. (AR Ex. I-49; AR page 1-430; Govt. App. 102.) 56 49. In summary, the trustees, directors, and officers of CST, along with partial listings of their past and current affil- iations and employment, are as follows (see AR Ex. I-39; AR, page I-357; Govt. App. 83; Findings 42-48, supra): TR'U'STEES Current Past Terri Gamboa A.S.I. C.S.C., L.R.H. Marion Meisler A.S.I. C.S.C., C.S.I., R.T.C. Gregory Wilhere A.S.I. C.S.C., CSFSO Founding Church DIRECTORS Lyman D. Spurlock A.S.I., R.T.C. C.S.C., L.R.H. Dan Przybylaki C.S.C., C.S.I., R.T.C. Nancy O' Meara OFFICERS Lyman D. Spurlock A.S.I., R.T.C. C.S.C., L.R.H. President Leo Johnson, C.S.C. Secretary Nancy O'Meara Treasurer Dan Przybylski C.S.C., C.S.I., Vice President R.T.C. - 57 - 50. Two former directors and officers of CST also had had prior and contemporaneous employment with other Scientology entities, such as C.S.C., C.S.I., A.S.I., and L. Ron Hubbard. Their prior employment with C.S.C. had been in periods that overlapped with C.S.C.'s criminal conspiracy (see Finding 27, supra). (AR Ex. 1-76; AR page I-750; Govt. App. 111.) 58 51. CST's "Special Directors" (see by-laws, pages 20-22; AR Ex. I-4; AR pages I-40 to I-42; Govt. App. 20-22) are expressly intended to be taken from the law firm that formed CST and RTC and devised L. Ron Hubbard's estate plan. (Ex. III-346, page C-8; AR page III-123; Govt. App. 164.) 59 52. One of CST's activities is the "training" and "ordain- ing" of Scientology ministers who are recognized by the hierarch- ical Scientology church. (AR Ex. I-17; AR pages I-99, I-101; Govt. App. 27; see also AR Ex. I-40; AR page I-358; Govt. App. 84.) 60 G. Contributions 53. For its existence CST depends entirely on other Scien- tol.ogy organizations. On page I of its exemption application, Form 1023 (AR Ex. 1-2; AR page I-2; Govt. App. _), CST stated,- "Nc) solicitation of funds is contemplated. * * * The organ- ization has no fundraising campaign and none is contemplated." Despite this passive approach, CST has obtained funds sufficient that it has already invested at least $15 million in its activ- ities. (Complaint para. 37.) In its year ended April 30, 1984, CST received contributions totaling $19,864,869 (AR Ex. VII-578; Govt. App. 193); in its year ended April 30, 1985, CST received contributions totaling $1,283,056 (AR Ex. VII-579; Govt. App. 195); in its year ended April 30, 1986, CST received contri- butions totaling $2,043,438 (AR Ex. VII-580; Govt. App. 196); and in its year ended April 30, 1987, CST received contributions totaling $2,873,213 (AR Ex. VII-581; Govt. App. 198). 61 54. CST's complaint alleges (Complaint para. 41): 41. Churches of Scientology located throughout the world have donated original Scriptural material in their possession to CST's preservation effort. CST also send staff on mission to selected churches to collect original material they may have that they are willing to donate. 62 VI UNANSWERED QUESTIONS 55. The IRS sent CST an "Information Document Request" (Form 4564) that read as follows (AR Ex. VII-941; Govt. App. 205): It is our understanding that the Board of CST meets regularly. Please furnish copies of all minutes of the Board of CST for review. In addition, if there are subcommittees of the Board which have been established, and which have written minutes of their meetings, please furnish copies of these Board Minutes as well. The request was sent June 17, 1988--S days before the telephone conversation described in Finding 63, infra, and 21 days before the IRS issued its final adverse determination--and the IRS has received no response to the request. 63 56. Also on June 17, 1988, the IRS sent CST an "Information Document Request" (Form 4564) that read as follows (AR Ex. VII-942; Govt. App. 206): Legal expenses for CST was (sic] more than $636,000 for the year ended April 30, 1987. It is our understanding that a large part of these legal expenses involve the defense by CST against claims by former members of Scientology against CST for various reasons. On occasion there are suits and countersuits by CST and by such persons and entities. Since these filings are public record, it would assist the reviewing team to ascertain the nature of legal expenses incurred if copies of these complaints and counter-complaints along with judicial decisions when appropriate were furnished to the Reviewing team for Review only. The IRS received no response to this request. 64 57. The IRS sent CST an "Information Document Request" (Form 4564) on May 10, 1988, that read as follows (AR Ex. VII-918; Govt. App. 204): The form 990 under review for April 30, 1987 indicates that CST has considerable assets, in savings and property. A copy of the pro forma 990 for April 30, 1984 and April 30 1986 * * * indicates that the bulk of these assets was derived from * * * 'public support' of $19,864,869.00 and $2,043,638.00 respectively. [See Finding 53, supra.] Please furnish a complete file as to the conditions and 10 circumstances * * * leading to the receipt of these considerable funds to CST. We do not have a copy of the April 30, 1985 pro forma 990, and would like a copy of that return. If that return also has public support income, an explanation similar to the above should be furnished. The IRS received no response to this request. 65 vii ON-SITE DOCUMENT REVIEW 58. On January 15, 1988, the IRS sent CST a letter, request- ing access to CST's records, which stated in part as follows (AR Ex. VI-7; AR page VI-89; Govt. App. 167): We are attempting to complete consideration of your application for exemption as an organization described in section 501(c)(3) of the Internal Revenue Code and this letter is issued with regard to that process. In order to complete our consideration, we need to review your books of account and records and those of Church of Scientology International and Religious Technology Center. 66 59. After negotiations, the IRS sent a revised letter dated March 17, 1988 (AR Ex. VI-17; AR pages VI-122 to VI-124; Govt. App. 168-170), which constituted a proposed agreement and which stated in part as follows: Re: Church of Spiritual Technology Dear Applicant: We are attempting to complete consideration of your application for exemption * * *. We are prepared to conduct a review of your organ- ization so that we may complete favorable consideration of your application for exemption * * *. In order to complete our consideration, we need to review your books of account and records and those of Church of Scientol- ogy International and Religious Technology Center. The purpose of this letter is to set forth the general scope of the agreed necessary review, as follows: 3. The review may encompass all relevant records of any Scientology organization. S. As with other internal Service reports, internal reports prepared by Service agents conducting this review from information developed during the review and not sent to you for comment are not part of the application and will not be part of the administrative record for judicial review under section 7428 of the Code. If you agree with this course of action please have a principal officer of your organization sign and date this letter in the space provided for that purpose and return one copy of the letter to us - 67 60. CST's president, Lyman Spurlock, signed the letter and dated it March 21, 1988. (AR Ex. VI-17; AR page VI-124; Govt. App. 170.) 68 61. Pursuant to the March 17 agreement, the on-site document review began on March 23, 1988. (Complaint para. 97.) By June 2, 1988, the IRS had completed its review of CST's records and began to review R.T.C.'s records. (Complaint paras. 106-107.) For purposes of defendant's motion, the Court may assume--as CST alleges and as defendant has stated above--that the IRS's on-site review of CST's documents was complete. In fact, defendant contends otherwise (i.e., it reserved the right to return to CST's records in the future, if later-developed infor- mation prompted a need to do so), but the point is not material to the instant motion to dismiss. 69 - 62. On June 22, 1988, CST came to believe 1,?j that the following events had occurred (Complaint paras. 108-110, 112-113): 108. On June 22, 1988, Vicki Aznaran, a former officer of RTC, informed RTC's legal counsel that she and her husband had been interviewed by IRS agents from Los Angeles. The interview was conducted in Dallas, Texas by Agents Corsi and Young and by an attorney with the IRS District Counsel Office in Los Angeles. Ms. Aznaran said that the District Counsel attorney, Greg Roth, specifically instructed her that "this meeting is confidential and closed to people outside of this room." 109. The interview took place pursuant to sum- monses Agents Corsi and Young had issued on May 9, 1988. Ms. Aznaran provided RTC's counsel with a copy of her summons. 110. Ms. Aznaran's summons was issued 'in the matter of Church of Scientology International, Church of Spiritual Technology, and Religious Technology Center" for the "periods 1982, 1983, 1984, 1985, 1986 and 1987." It required her to appear before Agents Corsi and Young to testify and produce records with respect to a civil complaint she and her husband had filed on April 1, 1988 against various Scientology organizations and individ- uals, including CST, CSI and RTC. The summons expressly referred to an attached copy of the complaint. 112. Agents Corsi and Young did not attempt to obtain the information they desired about the Aznaran's complaint from Applicants before they issued the sum- monses. At no time prior to or after the interview did they, the District Counsel attorney or any of the other agents working on the review give applicants the oppor- tunity to comment on the allegations in the complaint. They also never issued a document request for informa- Defendant points out that the proposed finding goes to CST's belief (which defendant assumes to be sincere), and not the actual facts. The subject of plaintiff's belief concerns an alleged confidential informant (see Complaint para. 108), which defendant will neither admit nor deny. For purposes of the motion to dismiss, the Court may assume that the facts are as plaintiff says it believes them to be. - 70 - tion concerning pending suits. [But see Finding 56, supra.] 113. Throughout the review Agents Corsi and Young purposely concealed the fact that they had issued the summonses. On May 11, 1988, two days after they issued the summons to Ms. Aznaran, Agents Corsi and Young provided RTC with a document request specifically asking RTC to arrange an interview with Ms. Aznaran as one of RTC's "principal officers." 71 63. On June 22, 1988, CST's representative telephoned an IRS official to ask about the events described in Finding 62, supra. When the IRS official refused to confirm or discuss the alleged events, CST informed the IRS that the on-site document review --which was the subject of the March 17 agreement--was unilater- ally "suspended" by CST, until CST "resolved the matter with the National Office." (Complaint para. 114.) 72 @he IRS sent CST a letter dated June 23, 1988 (AR -18; AR page VI-126; Govt. App. 171), which addressed the ,;uation as follows: The concern expressed by Mr. Spring and Ms-Yingling with the summons was that information should not have been obtained by the agents conducting the review in this manner, and that the agents should obtain infor- mation about your organization only through Mr. Spring; otherwise the March 17th agreement would be terminated. Until this matter is settled, we were advised that the review under the agreement is suspended. As explained orally to Mr. Spring and Ms. Yingling, the March 17, 1988, agreement sets forth procedures to be followed in conducting a review of your operations. It does not limit the Service's ability to interview third parties who may have information bearing on your activities. As specifically set forth in the March 17th agreement, information gathered during the review must be provided to you to be made part of the administrative record. Therefore, we consider the agreement to be in full force and effect, and we are ready to resume the review. Please let us know in writing within 10 days of the date of this letter whether you wish to terminate the agreement or to continue with the review. 73 65. CST responded with a letter dated June 24, 1988 (AR Ex. VI-19; AR pages VI-127 to VI-133; Govt. App. 172-178), which disputed this characterization of CST's position, but ended as follows: Applicants [ie., CST, C.S.I., and R.T.C.) respect- fully request the opportunity to meet with appropriate officials in the Nati?qal Office [of the IRS] to discuss these matters, including possible ways to satisfy their concerns. At a minimum, Applicants demand a copy of the recording of the interview. (For your information, enclosed is a copy of a FOIA request for this tape that was served on the District today.) Applicants particularly request that the National Office be prepared to address two other important questions at this meeting: who is in charge here, and what is their agenda? Please place a copy of this letter in the administrative record of each Applicant. 74 66. The IRS replied with a letter to CST dated July 7, 1988 (AR Ex. VI-23; AR pages VI-137 to VI-138; Govt. App. 179-180), which concluded as follows: * * * It is our view that the conduct of the District Office personnel and supervision of the review provided by the National Office both conform to the understandings contained in our letter of agreement to you dated March 17, 198S. However, by your action in removing the records from our agents, we consider that you do not wish to fulfill the terms of the March 17, 1988, agreement. We will, therefore, complete our consideration of your application as expeditiously as possible. We will inform you by letter of our final action on your application. 75