-
- The parties have entered into this Agreement in order to put
the past controversy behind them, to extinguish all potential claims
and liabilities arising as a result of action or inaction prior to
the date of this Agreement and to structure their relationship into
the future. While complex, there are certain basic principles underlying the Agreement that will aid in its comprehension.
-
- First, under section II of the Agreement the Church will make
a single payment that is intended to extinguish any potential tax
liability that may be due and unpaid by any Scientology-related entity
for all
- tax years up to and including the tax year ending in 1992. Thus,
as of December 31, 1992, the Church will be current with respect to
all income, employment and estate tax liability.
-
- Second, under section II of the Agreement, the Church and
the Service will withdraw from virtually all existing controversy,
including ongoing examinations of Church entities, ongoing litigation by
the
- Service to enforce summonses for Church records, and all
litigation by the Church against the Service and its current or former
personnel. In addition, because the parties intend that the relationship
between them begin anew, and in light of the other provisions contained
in this Agreement, including the payment with respect to
potential past tax liability, the Service and the Church agree under this
section II of the Agreement that the Service will not examine the Church
for any year ending prior to January 1, 1993. Similarly, no Scientology-related entity may initiate or support any legal
action against the Service or any Service employee for any claim
arising prior to the date of this Agreement.
-
- Third, it is the view of the Service that certain Church
entities are entitled to recognition of tax-exempt status as entities
described in section 501(c) (3) of the Internal Revenue Code. Thus, section
III of the Agreement contains a list of entities that will be
recognized as tax exempt entities, including certain entities that will
receive group exemption letters covering their subordinate
organizations.
-
- Notwithstanding the above, in light of, inter alia, the size
and complexity of the Church and the Service, certain concerns of
the Service and the Church remain. In addition, there is a need
for improved communication between the parties. Thus, under section
IV, a Church Tax Compliance Committee (CTCC) has been created
to undertake certain obligations during a seven-year transition period. The
CTCC is to be comprised of the largest United States Church entities,
as well as those individuals who are the highest ecclesiastical
or corporate authorities within the Church. The Service, through the Assistant
Commissioner, has agreed to meet with the CTCC upon their
request during the transition period to address any questions arising
from the ongoing performance of the parties' obligations under this Agreement.
-
- The CTCC is in a position to monitor and effect the operations
of the group entities that are defined as "Scientology-related
entities" under this Agreement. Under section IV, the CTCC is responsible for certain
reports produced and provided annually to the Service. These reports will include
a report on the application of certain agreed-upon procedures by
an independent certified public accounting firms, as well as
certain other information collected and reported by the CTCC.
These reports, and the information the CTCC collects
from Scientology-related entities in order to prepare them,
are intended solely for the purposes of administration of the tax
laws and not for any other purpose.
-
- In light of the CTCC and its relationship to the whole
of Scientology, the CTCC has agreed under section IV to guarantee the collection
of taxes (including interest and penalties) from any Scientology-related entity for tax liability arising during the first three years
of the seven-year transition period. The parties have agreed under
section V to keep confidential both this Agreement and all
underlying information that is not part of the public record under
Code section 6104 except to the extent that disclosure is necessary to
interpret or apply this agreement or is permitted under the authority of law.
In addition, the CTCC has agreed under section VI to
certain consensual penalties intended to provide the Service intermediate
sanctions for activities or conduct not in accordance with the Code or with
this Agreement.
-
- Finally, under section VII, the Service and the Church have come
to an agreement with respect to the treatment of contribution by
Church parishioners and the extent to which those contributions
are deductible under section 170 of the Internal Revenue Code, as
well as the Service's acknowledgment of its obligation to interpret
and apply the "gift or contribution" requirement of Code section 170
(c) equally and consistently to the fundraising practices of all
religious organizations that receive fixed donations from parishioners
in connection with participation in worship and similar
religious rituals or services.
-
-
-
- A. In General
-
- In general, the parties to the Agreement intend
that the below-described issues be finally and conclusively
resolved under this Agreement.
-
- B. Payment in Consideration of Resolution of Outstanding
Issues
-
- 1. At the same time this Agreement is executed, Church
of Scientology International is paying by banker's draft the sum of Twelve
and One-Half Million United States Dollars (US$12,500,000.00),
receipt of which the Service hereby acknowledges, as consideration for
the settlement of outstanding issues with the Service as set forth
in this Agreement.
-
- 2.The amount paid under this Agreement includes recognition
that the Church will not collect the attorneys' fees awarded to the
Church in the Church of Scientology of Boston, Inc. litigation referred to
in Exhibit II-2, thus extinguishing the Service's liability under
that decision.
-
- 3. The amount paid under this Agreement is not considered part
of,
- or
- attributable to, the federal tax liability of any
Scientology-related individual or Scientology parishioner, and is not
deductible, refundable or creditable to any such individual for any
purpose, nor may the amount be the subject of any other offset of
liability under this Agreement.
-
- 4. If, after application of the provisions of paragraph IX.H.,
the Service assesses a tax liability for a taxable year ending
before January 1, 1993 against any Scientology-related entity, the
amount paid under this Agreement shall be treated as a payment of
the taxes so assessed against such entity as of the date of this Agreement
in the manner designated by the CTCC. Otherwise, such amount shall
not be considered part of, or attributable to, the federal tax
liabilities of any Scientology-related entity and is not deductible, refundable
or creditable to any such entity for any purpose, nor may the
amount be the subject of any other offset of liability under this
Agreement.
-
- 5. The amount paid under this Agreement may be designated as
the Service provides (including penalties or liquidated damages) so
as to avoid characterization as a refundable or creditable
amount.
-
- 6. The amount paid under this Agreement shall not be deductible
in computing the taxable income of any Scientology-related entity
or Scientology parishioner and shall not be treated as compensation
of either income to any Scientology-related entity or
Scientology parishioner.
-
- 7. The performance of the various obligations under this
Agreement by the CTCC or by any Scientology-related entity, including (but
not limited to) the payment under paragraph II.B.1. hereof, shall
not in and of itself be considered by the Service to constitute
the conferring of substantial private benefits by any Scientology-related entity, the private inurement of the net earnings of
any Scientology-related entity, nor shall such performance
adversely affect in any other way the tax exempt status under Code
section 501 (c) (3) of any Scientology-related entity.
-
- 8. No inference shall be drawn from the fact that the
payment provided in paragraph II.B.1 has been made with respect to whether
any Scientology-related entity agrees that any tax liability
was actually due or owing for any pre-1993 period.
-
- C. Effect of Agreement on Prior Tax Years and Waiver of Rights
of Action
-
- 1. The Service agrees not to commence an examination or assess
any tax liability under subtitles A, B, or C of the Code or under
Chapter 42 of subtitle D of the Code for any taxable period ending on
or before
December 31, 1992, with respect to any Scientology-related
entity. Similarly, no Scientology-related entity shall have any right
to refund or offset with respect to any payment made for any
taxable period ending prior to the date this Agreement is
executed. Notwithstanding the previous sentence, any amounts held in
accounts under the joint signatory authority of any
Scientology-related entity and a representative of the Service, and any other
amounts otherwise in the nature of bond, to defer collection action by the
Service with respect to any liability assessed against a
Scientology-related entity
for the a pre- taxable period (including, but not limited to,
joint signature accounts at Sumitomo Bank to serve as collateral for
FICA assessments against CSI, RTC, CSWUS, and CST) shall be released or otherwise returned to the Scientology-related entity. The
Service and the CTCC shall jointly draft notice to the bank (s) to
effectuate release of such funds.
-
- 2. To the extent any payments have been made and/or claims
for refund filed for any taxable period prior to the date of this Agreement by
a Scientology- related entity, the Church and Service agree that
such payments are not subject to refund and will not be refunded.
The CTCC certifies that no Scientology-related entity will continue
to pursue such claim for refund or file any new claim for refund for
any pre-1993 period.
-
- 3. The Service and the Church agree that no inference is to
be drawn
- from any provision of the Agreement as to the tax treatment of
any activity or item relating to any liability under the Code for
any post-1992 periods unless expressly provided herein. For
example,
- the fact that the Service has not assessed any unrelated
business income tax for past years may not be construed to mean that
activities that occurred in those years did not give rise to such liability
and that if such activities continue into post-1992 taxable years, that
they will not give rise to such income. For further example, the
fact that the Church has made the payment provided in paragraph B.1.
shall
- not be construed as an admission, or otherwise used in any way
as evidence, that any Scientology-related entity was not exempt
from federal tax for any taxable period before 1993.
-
- 4. In reliance upon the covenant of good faith and fair
dealing that underlies this Agreement, the Church signatories, as well as
the Individual At-large members of the CTCC agree to relinquish
all claims arising out of any action or inaction of the Service of current
or former Service employees that occurred prior to the date of
this Agreement, including, but not limited to, any claims of
continued conspiracy having a genesis prior to the date of this Agreement.
In addition, the Church signatories, and the Individual and
At-large members of the CTCC certify that no Scientology-related entity
or Scientology-related individual shall assist (directly
or indirectly) any party in any suit against the United States, the Service
or
- current or former Service employees based upon any claim
arising out of any action or inaction of the Service or former or
current employees that occurred prior to the date of this
Agreement including,
- but not limited to, any claims of continued conspiracy having
its genesis prior to the date of this Agreement. If any Scientology-related entity or Scientology-related
individual commences any such action or provides any such assistance, then section
VI shall apply.
-
- 5. The CTCC shall indemnify and hold the United States, the
Service or any Service employee (former or present) harmless with respect
to any litigation filed or pursued in contravention of the Agreement,
that is, any litigation filed or pursued by or with the assistance
of any Scientology-related entity or Scientology-related individual.
For purposes of this paragraph C.5, direct or indirect
assistance includes, but is not limited to, financial aid, litigation
support, or the use in connection with litigation of documents obtained
from the Service by any Scientology-related entity or
Scientology-related individual prior to the date of this Agreement or under
the Inspection provisions of the Settlement Agreement entered into by the
parties on even date herewith.
-
- 6. Subject to the requirements of section VII, paragraph
G., nothing in the preceding two paragraphs shall be construed to prevent
any Scientology-related entity from conducting, supporting,
or participating in, directly or indirectly, any judicial
proceeding to construe or enforce the obligation under this Agreement, nor
to impose any sanction or require indemnification to the Service as a
result of such proceeding.
-
- D. Effect on Outstanding Administrative Matters
-
- 1. Church tax inquiries under Code section 7611
-
- The Service
shall close the following church tax inquiries on a no-change
basis :
-
- Church of Scientology International
- Church of Scientology Flag Service Organization, Inc.
(two outstanding inquiries)
- Church of Scientology Western United States
-
- 2. Other examinations of Scientology-related entities
-
- The
Service shall close the following income or employment tax examinations
on a no-change basis:
-
- Church of Scientology Expansion Trust
- Church of Scientology Religious Trust
- Scientology Endowment Trust
- Bridge Publications, Inc.
- Applied Scholastics International
- Author's Family Trust B
- International Association of Scientologists
- Religious Technology Center
- Church of Scientology International
- Church of Spiritual Technology
- Church of Scientology Flag Service Organization, Inc.
- Church of Scientology Western United States
- Church of Scientology of California (employment)
-
- 3. Outstanding tax assessments
-
- The Service shall abate in
their entirety the following unpaid tax assessments :
-
- Church of Scientology of California, FICA and FUTA for all
quarters of the years 1976 through 1986.
- Religious Technology Center, FICA for all quarters of the
years 1986 and 1987.
- Church of Scientology International, FICA for all quarters of
the years 1986 and 1987.
- Church of Spiritual Technology, FICA for all quarters of the
years 1986 and 1987.
- Church of Scientology Western United States, FICA for all
quarters of the years 1986 and 1987.
- Religious Technology Center, Form 1120 Corporate Income
Taxes, interest and penalties for the years 1982 to 1988.
- Church of Scientology International, Form 1120 Corporate
IncomeTaxes, interest and penalties for the years 1981 to 1988.
-
- With respect to the foregoing tax assessments, the Service
agrees to withdraw any notices of levy and to release any notices of tax
lien filed or made prior to the date of this Agreement.
-
- 4. Trust fund recovery penalties
-
- The Service shall abate in
their entirety assessments made under Code section 6672 with respect
to certain FICA assessments against Church of Scientology
of California (1985-1986), Church of Scientology International (1988), Church
of Spiritual Technology (1988), Religious Technology Center
(1988), and Church of Scientology Western United States (1988), against the
following individuals : David Miscavige, Norman F. Starkey,
Marc Yager, Mark Ingber, Lyman Spurlock, Patrick Broeker, and Ann Marie
Tidman (Broeker). In addition, with respect to the foregoing
penalty assessments, the service shall (1) refund upon proper claim
any amounts collected, along with interest as permitted by law,
(2) withdraw any notices of levy, and (3) release any notices of
tax lien filed.
-
- 5. Time period in which to effectuate paragraph D
-
- The
Service shall take the actions required under this paragraph D. by April 1,
1994.
-
- E. Effect on Outstanding Litigation Matters
-
- 1. In general
-
- The Service and the CTCC agree that all
litigation set forth in Exhibits II-1 and II-2 shall be dismissed with
prejudice by stipulation of the parties (or, where appropriate, the
pending appeal shall be withdrawn) with all litigation costs (e.g., attorney
fees) to be borne by the respective parties. The parties agree that
no damages, costs, attorney fees, or any other amounts of relief shall
be sought by any Scientology-related entity or
Scientology-related individual, the United States, the Service or any individual plaintiff in
any suit contained in Exhibits II-1 or II-2.
-
- 2. Zolin
-
- The Service further agrees that following dismissal
of the litigation listed on Exhibit II-2 as Zolin, it shall use its
best efforts to return to the CTCC all materials and all copies
thereof produced to the Service in response to the summons at issue in
that litigation by no later than April 1, 1994. The CTCC
hereby certifies that CSI shall retain all such materials during the
transition period. No inference shall be drawn from the fact the Service is
returning these materials that they were summonsed for an improper
law enforcement purpose and the CTCC agrees not to assert such
an inference in any future litigation.
-
- 3. Stipulations
-
- At Exhibit II-3, are copies of stipulations
to dismiss the cases discussed at paragraph E.1. executed by
counsel of record for the non-governmental parties thereto. The parties
agree that, to the extent practicable, these stipulations shall be
used to cause the dismissal of these cases and will provide a
complete resolution of all issues arising out of the same subject
matter. The parties agree that these stipulations shall be executed by
counsel of record for the government and returned to the CTCC. The CTCC
will file the fully executed stipulations with the appropriate court
within 30 days of its receipt of the executed stipulations. The
parties further agree not to undertake any further actions to prosecute or
defend any such litigation during the period of time following execution
of this Agreement until the court has acted on the parties'
dismissal stipulations. In addition, the parties agree to file as
necessary requests to stay any action on such cases pending
dismissal.
-
- 4. Certain pending cases requiring coordination
-
- Recognizing
that carrying out the provisions of this paragraph E. shall
require coordination with persons and agencies not parties to
this Agreement, the parties further agree as follows :
-
- a. The Service shall use its best efforts to secure the
voluntary dismissal with prejudice of all litigation listed in Exhibits
II-1 and II-2 in which the Commissioner, the Service and /or
Service
- employees
are represented by the United States Department of
Justice.
-
- b. The CTCC shall use its best efforts to secure the
voluntary dismissal with prejudice of all litigation listed in Exhibits
II-1 and II-2 insofar as it involves litigants who are not Scientology-related
entities or individual members of the CTCC. Following execution
of this agreement, the Church signatories, and the Individual
and At-large members of the CTCC certify that no
Scientology-related entity nor Scientology-related individual shall provide any
further support or assistance (directly or indirectly) in such
litigation.
-
- F. After-Discovered Cases or Examinations in Existence as of
the Date of this Agreement
-
- It is the intention of the parties to
cease activity and dismiss with prejudice all existing cases
in controversy between the Service and any Scientology-related entity
or Scientology-related individual, costs to be borne by each
party (e.g., attorney fees), as well as all existing current examinations
of Scientology-related entities for years prior to 1993. Thus,
if there exists other civil actions that are not contained in Exhibits
II-1 and II-2 or in the Settlement Agreement, Exhibit IV-6, or
an examination
- of a Scientology-related entity is not listed in paragraphs D.1
and D.2, and the exclusion of such suit was inadvertent (i.e.,
not specifically discussed and intentionally excluded by the
parties during their negotiations), the parties agree to dismiss such
suit or cease such examination as soon as administratively
feasible.
-
- G. Finality
-
- The provisions of this section II. are final
and conclusive, except as provided in section IX, paragraph
H., notwithstanding the seven-year transition period set forth in
other provisions of this agreement.
-
-
- A. Issuance of Determination Letters
-
- Having received and reviewed the completed Forms 1023,
Applications For Recognition of Exemption and the attachments thereto for
the entities described in paragraphs B.1, B.2, B.3, B.4, B.5, B.6,
B.7, B.8, and B.9 together with requests for group exemption letters
and the attachments thereto described in paragraphs in paragraphs
C.1, C.2, C.3 and C.4, on the basis of that information, the Service
is issuing the individual determination letters and
group determination letters described below and copies of which are attached
at Exhibits III-1 through III-30.
-
- B. Individual Determination Letters
-
- 1. The Service hereby issues individual determination
letters (copies attached as Exhibits III-1 through III-5, respectively) that
the following entities are organizations described in Code
sections 501(c) (3), 170(c) (2), 509(a) (1), and 170 (b)(1)(A)(i) :
-
- Religious Technology Center ("RTC")
- Church of Scientology International ("CSI")
- Scientology Missions International ("SMI")
- Church of Spiritual Technology ("CST")
- Church of Scientology Flag Service Organization, Inc.
("CSFSO")
-
- 2. The Service hereby issues an individual determination
letter (copies attached as Exhibit III-6) that Foundation Church
of Scientology Flag Ship Service Organization ("CSFSSO") is
an organization described in Code sections 501(c) (3), 509(a) (1),
and 170(b)(1) (A) (i). CSFSSO is not described in Code section 170
(c) (2) because it is a foreign entity.
-
- 3. The Service hereby issues individual determination
letters (copies attached as Exhibits III-7 through III-14, respectively) that
the following Scientology-related entities are organizations
described
- in Code sections 501(c) (3), 170(c) (2), and 509(a) (3):
-
- Inspector General Network ("IGN")
- International Hubbard Ecclesiastical League of Pastors
("IHELP")
- Building Management Services ("BMS")
- Bridge Publications, inc. ("BPI")
- Dianetics Centers International ("DCI")
- Dianetics Foundation International ("DFI")
- Hubbard Dianetics Foundations ("HDF")
- U.S. IAS Members' Trust
-
- 4. The Service hereby issues individual determination
letters (copies attached as Exhibits III-15 and III-16, respectively) that
the following Scientology-related entities are organizations
described in Code sections 501 (c) (3), 170 (c) (2), 509 (a) (1) and, 170
(b) (1) (A) (vi):
-
- The Way to Happiness Foundation ("TWTH")
- Association for Better Living and Education ("ABLE")
-
- 5. The Service hereby issues individual determination
letters (copies attached as Exhibits III-17 and III-19, respectively) that
the following Scientology-related entities are organizations
described in Code sections 501 (c) (3) and 509 (a) (3):
-
- Scientology International Reserves Trust ("SIRT")
- Flag Ship Trust ("FST")
- New Era Publications International ApS ("NEP")
-
- However, these organizations are not describe in Code section
170 (c) (2) because they are foreign entities.
-
- 6. Pursuant to a ruling request, the Service hereby modifies
the individual determination letter (copy attached as Exhibit
III-20) that the Church of Scientology Religious Trust ("CSRT") is
an
- organization
described in Code sections 501(c) (3), 170 (c) (2), and 509(a)
(3).
-
- 7. The Service hereby issues individual determination
letters (copies attached as Exhibits III-21 through III-23, respectively) that
the International Association of Scientologists ("IAS") and
its operating arms : Membership Services Administration, Ltd., and
FoundationInternational Membership Services Administration d/b/a
IAS Administrations, are organizations described in Code
sections 501(c) (3), and 509(a) (3). IAS and its operating arms are not
described in Code section 170(c) (2) because they are foreign
entities.
-
- 8. The Service hereby issues an individual determination
letter (copy attached as Exhibit III-24) that the Hubbard College
of Administration ("HCA") is an organization described in Code sections 501(c)
(3), 170
- (c) (2), 509 (a) (1), and 170 (b) (1) (A) (ii).
-
- 9. Having previously issued a determination letter to the Church
of Scientology Western United States ("CSWUS") (under the name
Church of Scientology of San Diego) recognizing CSWUS as an
organization described in Code sections 501(c) (3), 170 (c) (2), 509 (a)
(1), and 170 (b) (1) (A) (i), and having received and reviewed an
updated Form 1023 and attachments thereto (dated August 30, 1993), the
Service hereby issues a revised determination letter (copy attached
as Exhibit III-25) recognizing CSWUS as an organization described in
Code sections 501(c) (3), 170 (c) (2), 509 (a) (1), and 170 (b)(1)
(A) (i).
-
- 10. The Service agrees that the organizations listed in
paragraphs B.1, B.2. and B.9. are churches described in Code section 6033
(a) (2) (A) (i). Pursuant to Code section 6033(a) (2), Treas.
Reg. [Section] 1.6033-2(g) (6), and Rev. Proc. 86-23, 1986-1 C.B. 564, the
service determines that the organizations described in paragraphs B.3,
B.5, B.6, B.7, and B.8. are church-affiliated organizations that
need not file annual Forms 990. However, nothing in this Agreement
relieves
- any Scientology-related entity from any requirement to file a
return (e.g., filing the Form 990-T in the event of unrelated
business taxable income).
-
- C. Group Determination Letters
-
- 1. The Service hereby issues a group determination letter
(as described in Rev. Proc. 80-27, 1980-1 C.B. 677 and Treas.
Reg. [Section] 601.201 (n) (8) (copy attached as Exhibit III-26))
that the
- subordinate organizations of the Church of
Scientology International are organizations described in Code sections 501(c) (3), 170
(c) (2), 509 (a) (1), 170 (b) (1) (A) (i), and 6033 (a) (2) (A)
(i).
-
- 2. The Service hereby issues a group determination letter
(as described in Rev. Proc. 80-27, 1980-1 C.B. 677 and Treas.
Reg. [Section] 601.201(n)(8) (copy attached as Exhibit III-27)) that
the subordinate organizations of Scientology Missions International
are organizations described in Code sections 501(a) (2) (A) (I),
170 (c)(2), 509(a)(1), 170(b) (1)(A)(i), and 6033
(a)(2)(A)(i).
-
- 3. The Service hereby issues a group determination letter
(as described in Rev. Proc. 80-27, 1980-1 C.B. 677 and Treas.
Reg. [Section] 601.201(n)(8) (copies attached as Exhibit III-28
and III-29, respectively)) that the subordinate organizations of the
following Scientology-related entities, are organizations described in
Code sections 501 (c) (3), 170 (c) (2), 509 (a) (1), 170 (b) (1)
(A) (ii) (but are not described in Code section 6033 (a) (2) (A)
(I) :
-
- Applied Scholastics Inc.
- Hubbard College of Administration ("HCA")
-
- 4. The Service hereby issues a group determination letter
(as described in Rev. Proc. 80-27, 1980-1 C.B. 677 and Treas.
Reg. Section 601.201(n)(8) (copy attached as Exhibit III-30)) that
the subordinate
- organizations of the Citizens Commission on Human Rights
("CCHR") are described in Code sections 501 (c) (3), 170 (c) (2), 509 (a)
(1), 170 (b) (1) (A) (vi) (but are not described in Code section 6033(a)
(2) (A) (i)).
-
- 5. Subordinate organizations initially covered by the
group exemptions recognized under paragraphs C.1, C.2, C.3 and C.4 are set forth
in the following respective Exhibits:
-
- Church of Scientology International Exhibit III-31
- Scientology Missions International Exhibit III-32
- Applied Scholastics Inc. Exhibit III-33
- Citizens Commission on Human Rights Exhibit III-34
- Hubbard College of Administration Exhibit III-35
-
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