-
- A. Code section 6104 Public Inspection File
-
- 1. The Code section 6104 public inspection file for Church
of Scientology International shall include a Form 1023
with information and financial data for taxable years 1989, 1990, and 1991.
In addition, the Code section 6104 public inspection file for
CSI shall include agreed upon portions of the Qualified Written
Material. These documents and the resulting determination letter shall be the
only materials considered as the application, supporting papers
and determination information described in Code section
6104(a)(1)(A) with respect to Church of Scientology International.
-
- 2. The Code section 6104 public inspection file of
each Scientology-related entity (other than Church of
Scientology International) to be recognized as exempt under section
III. paragraph B. hereof shall include the individual Form 1023 with
information and financial data for taxable years 1989, 1990, and 1991,
previously submitted by the Church. With respect to the parent Scientology-related entities listed in section III. paragraph
C., the Code section 6104 public inspection file shall include a
group exemption request with information for taxable years 1989,
1990, and 1991, as previously submitted by the Church. Each such
application shall incorporate by cross-reference the application and
Code section 6104 public inspection file of Church of Scientology
International as described in paragraph A.1. These documents, including Church
of Scientology International's Code section 6104 public
inspection file incorporated by reference and the resulting determination
and ruling letters, shall be the only materials considered as the
application, supporting papers and determination information described in
Code section 6104(a)(1)(A) for each remaining Scientology-related
entity to be recognized as exempt pursuant to this Agreement.
-
- 3. The Service shall close without action exemption
determination applications by the following Scientology-related
entities :
- Religious Technology Center ("RTC")
- Church of Scientology International ("CSI")
- International Hubbard Ecclesiastical League of Pastors
("IHELP")
- The Way to Happiness Foundation ("TWTH")
- Association for Better Living and Education ("ABLE")
- Church of Scientology Celebrity Centre Dallas
- Church of Scientology of Georgia
- Church of Scientology Mission of New Jersey
- RTC, CSI, IHELP, TWTH and ABLE submitted revised and updated
Forms 1023 and are being recognized as exempt under paragraph B.
of section III. of this Agreement. The remaining three entities are
being recognized as subordinate entities under group exemptions
being recognized under paragraph C. of section III. of this
Agreement.
-
- 4. All information submitted in connection with the
closed applications as described in paragraph A.3., and all
information submitted in connection with this Agreement other than that
listed in paragraph A.1. and A.2., including but not limited to (i)
all Qualified Written Material information not specifically included
as part of the Code section 6104 public inspection file of Church
of Scientology International pursuant to paragraph A.1., and (ii)
this Agreement itself, shall be considered to be return
information described in Code section 6103(b)(2).
-
- B. Disclosure of Information by the Service
-
- 1. The Service shall maintain the information described in
section V. paragraph A.4. of this Agreement in the office of the
Assistant Commissioner and shall disseminate such information within
the Service only to the extent the Assistant Commissioner determines
it necessary for the administration of the Code (including actions taken
in administering this Agreement).
-
- 2. The Service shall not disclose any information described
in
- section
V. paragraph A.4. of this Agreement, including but not limited
to this Agreement itself, to any third party other than as permitted
under Code section 6103 or otherwise as permitted under applicable law
or under this Agreement.
-
- 3. The Service agrees to use its best efforts to notify the CTCC
of any litigation against the Service by a third party to
compel production of information described in section V. paragraph A.4.
of this Agreement.
-
- C. Disclosure of Information by the CTCC
-
- 1. The CTCC may use information described in section V.
paragraph A.4. only to the extent necessary to carry out its obligations
hereunder to inform Church parishioners of the provisions of section VII of
this Agreement.
-
- 2. The CTCC may use information described in section V.
paragraph A.4. only to the extent it determines it is necessary in connection
with any tax matter by any state or local governmental body in
the United States or by any foreign governmental body. To minimize the
extent of such disclosure, the Service agrees to certify the effect
of relevant provisions of this Agreement to any other governmental
taxing authority upon request by the CTCC and following consultation
with the CTCC concerning the text of such certification. This paragraph
C.2. of this section V in no way limits the obligations or discretion
of the Service with the respect to governmental taxing authorities
under section 6103.
-
- 3. The CTCC shall not produce information described in section
V.paragraph A.4. of this Agreement, including but not limited to
this Agreement itself, except to the extent allowed under this
section V. It is the specific intent of the Parties that such
materials, including but not limited to this Agreement itself, shall not
be the subject of discovery in any civil litigation between a third
party and any Scientology-related entity or individual, and the CTCC
agrees not to produce such information in such circumstances except to
the extent disclosure is compelled by a court of competent jurisdiction
after exhaustion of all available judicial review. The parties agree
that the provisions of this paragraph C. of this section V. are
the result of shared concerns regarding confidentiality. Except in
carrying out the provisions of paragraph C. of this section V., the CTCC
agrees not to assert or otherwise publicly characterize this Agreement in
a manner that would indicate that the Service has required
that information under this Agreement be kept
confidential.
-
- D. Proceeding Under Agreement
-
- Notwithstanding any other
paragraph
- of this section V, information described in section V. paragraph
A.4. of this Agreement may be disclosed in any proceeding to construe
or enforce any provision of this Agreement or in any
proceeding relating to the federal tax liability of any Scientology-related entity.
In the event disclosure becomes necessary under this paragraph D.,
the parties agree to use their best efforts to file all
information described in section V. paragraph A.4. under seal so that it
does not become part of the public judicial or administrative
record.
-
- E. Disclosure Following Inquiries
-
- The CTCC agrees that
the Service, in response to inquiries, may characterize the information in
the section 6104 public inspection files and may acknowledge
the existence of an agreement that has settled a variety of longstanding
issues between the Church and the Service, including exemptions from
tax as well as a variety of outstanding tax and litigation matters.
In addition, in response to such inquiries, the Service may
disclose that there is a Closing Agreement concerning the nature and extent
of permissible disclosure by the Service in light of the
requirements of Code section 6103 and acknowledge the existence and extent of
tax information authorizations submitted pursuant to this Agreement
and the Settlement Agreement.
-
- F. Correction of Misstatements
-
- Either the Service or the CTCC
may disclose information described in section V. paragraph A.4. of
this Agreement in the event of a misstatement of fact or mischaracterization published or disclosed about the contents
of, the effects of, or reasons for, this Agreement or matters
related thereto. Information described in section V. paragraph A.4. may be
disclosed for this purpose only to the extent necessary to correct
the misstatement or mischaracterization and only if the
Assistant Commissioner and the CTCC have consulted prior to such
disclosure.
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- G. Term of Undertaking
-
- Paragraph A. of this section V. applies
as long as the Service retains any of the information described
in paragraph A. The remaining paragraphs of this section V. apply
only through December 31, 1999.
-
-
-
- A. Introduction: Purpose and Scope of Sanctions
-
- This section VI sets forth sanctions to provide assurance to
the Service that the Church Tax Compliance Committee will ensure
that all Scientology-related entities will operate in a manner
consistent with Code section 501(c)(3) and will carry out specified
obligations under this Agreement during the transition period. The provisions of
this section are in addition to, and not in lieu of, any
other enforcement measures available to the Service under this Agreement, the
Code, at law or in equity. Thus, notwithstanding any provisions of
this section or this Agreement in its entirety, the Service may question
its recognition or exemption of any Scientology-related entity for
any taxable year subsequent to 1992 (and for previous years if
this Agreement is not final by reason of section IX. paragraph H.)
or take any other action permitted under the Code, without regard
to whether the Service has asserted (successfully or otherwise) any
penalty under this section VI. Nevertheless, it is intended that the
consensual sanctions set forth in this section are to provide the Service
with intermediate sanctions for activities or conduct not in
accordance with the provisions of Code section 501(c)(3) for which
revocation of recognition of exemption may be too harsh or
otherwise inappropriate as a sanction, and that the Service will notify and consult
with the CTCC prior to pursuing any sanctions under this
Agreement.
-
- B. Self-Dealing Transactions
-
- 1. First-tier penalties
-
- a. On Individual CTCC member who is a self-dealer or who is
related to a self-dealer. Under this Agreement, there is a penalty imposed
on each knowing act of self-dealing between a disqualified person
and a Scientology-related entity. The penalty shall equal 5 percent
of the amount involved with respect to the act of self-dealing for
each taxable year (or part thereof) in the sanction period
(defined below). The penalty imposed by this paragraph shall be paid by
each Individual CTCC member: (i) who is the disqualified person who engaged in
such act of self-dealing; or (ii) who is related (as described
in section VIII. paragraph N.2. through 9., including the attribution
rules contained therein) to any person that participates in the act
of self-dealing. No penalty shall be due under this paragraph
B.1.a. if and to the extent that an act of self-dealing has been
corrected within the correction period.
-
- b. On Individual CTCC members with knowledge of transaction. In
any case in which a penalty is imposed by section VI. paragraph
B.1.a., there is an additional penalty imposed on the participation of
any Individual CTCC member in an act of self-dealing between
any disqualified person and a Scientology-related entity, knowing
that it is such an act, equal to 2 1/2 percent of the amount involved
with respect to the act of self-dealing for each taxable year (or
part thereof) in the sanction period, unless such participation is
not willful and is due to reasonable cause. The penalty imposed by
this paragraph shall be paid by any Individual CTCC member
who participated in the act of self-dealing. No penalty shall be due under
this paragraph B.1.b. if and to the extent that an act of
self-dealing has been corrected within the correction period.
-
- 2. Second-tier penalties
-
- a. On Individual CTCC member who is a self-dealer or who is
related to a self-dealer. In any case in which a first tier penalty is
imposed by section VI. paragraph B.1. on an act of self-dealing by
a disqualified person with a Scientology-related entity and the act is
not corrected within the sanction period, there is hereby imposed a penalty
equal to 200 percent of the amount involved. The penalty imposed by
this paragraph shall be paid by each Individual CTCC member: (i) who
is the disqualified person who engaged in such act of self-dealing;
or(ii) who is related (as described in section VIII. paragraph N.2
through 9., including the attribution rules contained therein) to
any person that participates in the act of self-dealing. No penalty shall
be due under this paragraph B.2.a. if and to the extent that an act
of self-dealing has been corrected within the correction
period.
-
- b. On Individual CTCC member refusing to correct.
-
- i. In any case in which a second tier penalty is imposed
under section VI. paragraph B.2.a., if any Individual CTCC member refuses
to agree to part or all of the correction, a penalty is imposed equal to
50 percent of the amount involved. The penalty imposed by
this paragraph shall be paid by each Individual CTCC member who refused to
agree to part or all of the correction.
-
- ii. In addition, in the event that correction does not occur
by reason of any officer or director of any Scientology-related
entity refusing to agree to part or all of the correction, there is a penalty
equal to 50 percent of the amount involved. The penalty imposed under
this paragraph shall be paid by each Individual CTCC
member.
-
- iii. No penalty shall be due under this paragraph B.2.b. if and
to the extent that an act of self-dealing has been corrected within
the correction period.
-
- 3. Self-dealing
-
- a. In general
-
- For purposes of this section VI., the
term "self-dealing" means any direct or indirect:
-
- i. sale or exchange, or leasing, of property between
a Scientology-related entity and a disqualified person;
-
- ii. lending of money or other extension of credit between
a Scientology-related entity and a disqualified person;
-
- iii. furnishing of goods, services, or facilities between
a Scientology-related entity and a disqualified person;
-
- iv. payment of compensation (or payment or reimbursement
of expenses) by a Scientology-related entity to a disqualified
person;
-
- v. transfer to, or use by or for the benefit of, a
disqualified person of the income or assets of a Scientology-related entity;
and
-
- vi. payment by any Scientology-related entity of any
penalty imposed under this section VI. upon any Individual CTCC
member.
-
- b. Special rules
-
- For purposes of section VI. paragraph
B.3.a.--
-
- i. the transfer of real or personal property by a
disqualified person to a Scientology-related entity shall be treated as a sale
or exchange if the property is subject to a mortgage or similar lien which
the Scientology-related entity assumes or if it is subject to
a mortgage or similar lien which a disqualified person placed on the
property within the 10-year period ending on the date of the
transfer;
-
- ii. the lending of money by a disqualified person to
a Scientology-related entity shall not be an act of self-dealing
if the loan is without interest or other charge (determined without
regard to Code section 7872) and if the proceeds of the loan are
used exclusively for purposes specified in Code section 501(c)
(3);
-
- iii. the furnishing of goods, services, or facilities by
a disqualified person to a Scientology-related entity shall not be
an act of self-dealing if the furnishing is without charge and if
the goods, services, or facilities so furnished are used
exclusively for purposes specified in Code section 501(c) (3);
-
- iv. the furnishing of goods, services, or facilities by
a Scientology-related entity to a disqualified persona shall not
be an act of self-dealing if such furnishing is made on a basis no
more favorable than that on which such goods, services, or
facilities are made available to the general public; and
-
- v. the payment of compensation (and the payment of reimbursement
of expenses) by a Scientology-related entity to a disqualified
person for personal services which are reasonable and necessary to
carrying out the exempt purpose of Scientology-related entities shall not be
an act of self-dealing if the compensation (or payment or
reimbursement) is not excessive.
-
- c. Exceptions
-
- Notwithstanding section VI. paragraphs B.3.a.
and B.3.b., the following shall not be treated as an act
of self-dealing:
-
- i. The provision to a disqualified person of goods, services
and facilities by a Scientology-related entity on the same basis
as generally provided to other members of the Sea Organization,
with commensurate adjustments for the ecclesiastical rank
and responsibilities of the disqualified person. The goods,
services and facilities described in this section VI. paragraph B.3.c.i.
include all benefits generally provided by Scientology-related entities
to members of the Sea Organization, including but not limited to
room and board, medical care, uniforms, child care and education, use
of corporate vehicles and ministry of religious
services.
-
- ii. The provision of insurance coverage by any
Scientology-related entity to any disqualified person against a claim of misconduct
in his or her capacity as an executive of any Scientology-related
entity
- (but
not including any penalty imposed under this section VI.
paragraph B. upon any Individual CTCC member), as well as reasonable
litigation costs and attorneys' fees incurred in defending any such
claim.
-
- iii. The direct payment, without the use of insurance, by
any Scientology-related entity of a disqualified person's
personal liability arising from any claim of misconduct in his or
her capacity as an executive of any Scientology-related entity (excluding
a penalty imposed under this section VI. upon any Individual CTCC member),
as well as payment or reimbursement of reasonable litigation costs
and attorney's fees incurred in defending against any such
claim (including defense against a penalty imposed under this section
VI. upon any Individual CTCC member), provided that the board of
the Scientology-related entity that is making the expenditure and
the other Individual CTCC members determine, upon appropriate review
of the circumstances and consultation with outside legal counsel,
that the Individual CTCC member acted reasonably under the circumstances, in the best interest of the relevant Scientology-related entity
or entities, and without knowledge or reason to believe that
such action would be in violation of any applicable law or of this
Agreement.
-
- iv. Any transaction for which the disqualified person and
the affected
Scientology-related entity have obtained guidance in advance
from the Service that the proposed transaction would be in the best
interest of the continued operation of the affected Scientology-related
entity and will not be penalized under this Agreement. Any request for
such guidance shall be sent to the Assistant Commissioner as provided
in section IX of the Agreement. If after 120 days no response to
the request has been received, the transaction described in the
ruling request shall be deemed not to create a situation in which
the penalties of this section VI will be applied.
-
- v. Theft, embezzlement or other misappropriation of property
or funds from a Scientology-related entity is an act of self-dealing
only if, and only to the extent, that a disqualified person participates
in such misconduct.
-
- d. Amount involved
-
- For purposes of this section VI., paragraph
B., the term "amount involved" means, with respect to any act
of self-dealing, the greatest of (i) the amount of money and the
fair market value of the other property given; (ii) the amount of
money and the fair market value of the other property received; or (iii)
the sum of $100,000. Notwithstanding the preceding sentence, in the case
of services described in section VI. paragraph B.3.iv., the
amount involved shall be the greater of $100,000 or the
excess compensation. In addition, in the case of a lease or loan, the amount
involved shall be the greatest of (i) the fair market interest rate or
rental, (ii) the amount actually charged, or (iii) $100,000. For purposes
of determining the amount involved, the fair market value in the
case of the penalties imposed by section VI. paragraph B.1.a., shall
be determined as of the date on which the act of self-dealing
occurs; and in the case of the penalties imposed by section VI.
paragraph B.1.b.,
shall be the highest fair market value during the sanction
period.
-
- C. Noncharitable Expenditures
-
- 1. First-tier penalties
-
- a. On Corporate CTCC members.
-
- Under this section VI. paragraph
C., a penalty is imposed on each noncharitable expenditure (as defined
in section VI. paragraph C.3.) of any Scientology-related
entity described in the Code section 501(c) (3). The penalty shall
be equal to 10 percent of the amount involved as defined in paragraph
C.5.. The penalty imposed by this paragraph shall be paid on a joint
and several basis by the CTCC Corporate members. No penalty shall be due
under this paragraph C.1.a. if and to the extent that a
taxable expenditure has been corrected within the correction period.
-
- b. On Individual CTCC members.
-
- There is hereby imposed on
the agreement of any Individual CTCC member to the making of
an expenditure or undertaking an activity, knowing that it is
a noncharitable expenditure, a penalty equal to 2 1/2 percent of
the amount involved, unless such an agreement is not willful and is
due to reasonable cause. The penalty imposed by this paragraph shall
be paid by any Individual CTCC member who agreed to the making of
the expenditure of undertaking the activity. No penalty shall be
due under this paragraph C.1.b. if and to the extent that a
taxable expenditure has been corrected within the correction period.
-
- 2. Second-tier penalties
-
- a. On Corporate CTCC members.
-
- In any case in which a first
tier penalty is imposed by section VI. paragraph C.1.a. by reason of
a noncharitable expenditure and such expenditure or activity is
not corrected within the sanction period, there is hereby imposed
a penalty equal to 100 percent of the amount involved. The
penalty imposed by this paragraph shall be paid on a joint and
several basis by the CTCC Corporate members. No penalty shall be due under
this paragraph C.2.a. if and to the extent that a taxable
expenditure has been corrected within the correction period.
-
- b. On Individual CTCC members.
-
- i. In any case in which an additional penalty is imposed
by paragraph C.2.a., if an Individual CTCC member refused to agree to part
or all of the correction, there is hereby imposed a penalty equal to
50 percent of the amount involved. The penalty imposed by
this paragraph shall be paid by each Individual CTCC member who refused to
agree to part or all of the correction.
-
- ii. In addition, in the event that correction does not occur
by reason of any officer or director of any Scientology-related
entity refusing to agree to part or all of the correction, there is a penalty
equal to 50 percent of the amount involved. The penalty imposed under
this paragraph shall be paid by each Individual CTCC
member.
-
- iii. No penalty shall be due under this paragraph C.2.b. if and
to
- the extent that a taxable expenditure has been corrected within
the correction period.
-
- 3. a. Noncharitable expenditure
-
- For purposes of this section
VI., the term "noncharitable expenditure" means :
-
- i. any amount paid or incurred by a Scientology-related
entity described in Code section 501 (c) (3) :
-
- (a) to an entity or individual unless
:
-
- (1) the recipient entity is described in Code section 501 (c)
(3),or
-
- (2) the payment will directly further a charitable purpose and
the Scientology-related entity exercises expenditure
responsibility with respect to such payment as required and in accordance
with paragraph C.3.b.
-
- (b) any amount paid or incurred by a Scientology-related entity
for any purpose other than one specified in Code section 170 (c)
(2) (B).
-
- ii. any amount paid or incurred by a Scientology-related entity
as a special noncharitable expenditure as defined in paragraph
C.4.
-
- 3.b. Expenditure responsibility
-
- The expenditure
responsibility referred to in section VI. paragraph C.3.a.i. (a) (1) means that
the Scientology-related entity is responsible to exert all
reasonable efforts and to establish adequate procedures during the
transition period :
-
- i. to see that the payment is spent solely for the
charitable purpose for which made,
-
- ii. to obtain full and complete reports from the recipient on
how the funds are spent, and
-
- iii. to make full and detailed reports on such expenditures to
the Service as part of the Annual Report described in section
IV paragraph C.7.
-
- Expenditure responsibility is required under this section
VI. paragraph C.3.b. only to the extent the CTCC is required to
report with respect to its expenditure responsibility as part of
the Annual Report under section IV., paragraph C.7.
-
- 3
c. Governing principles
-
- In determining whether a
particular expenditure is a noncharitable expenditure, the Service shall
be guided by principles of section 53.4945-6 (b) (2) of the
Treasury Regulation (regardless of whether the expenditure involves
an administrative expense), under which it is neither the policy
nor the prerogative of the Service to substitute its judgment for
the reasonable exercise of business judgment by executives of
the affected Scientology-related entity.
-
- 4. Special noncharitable expenditure
-
- For purposes of this
section VI., the term "special noncharitable expenditure" means any
amount paid or incurred by a Scientology-related entity or Scientology-related individual in connection with the
following:
-
- a. Any act or omission that any CTCC member knew would impair
the efficacy of the guaranty of collection set forth in section
IV. paragraph A.3.d. of this Agreement.
-
- b. The diminution of assets in violation of section IV.
paragraph A.3.d.viii.
-
- c. Any expenditure by a Scientology-related entity that has
not been recognized as tax exempt under section III. of this Agreement or
by any Scientology-related individual, if such expenditure
jeopardizes the tax-exempt status of any Scientology-related entity
recognized under section III. of this Agreement as described in Code
section 501 (c) (3).
-
- d. The conduct or support of litigation by a
Scientology-related entity or a Scientology-related individual against the Service
or any present or former Service employee in violation of section
II. paragraph C.4. or C.5. of this Agreement.
-
- e. The financial support by a Scientology-related entity
or Scientology-related individual of a tax refund claim against
the Service in violation of section VII., paragraph G.
-
- 5. Amount involved
-
- For purposes of this section VI. paragraph
C., the term "amount involved" as it relates to the penalties
provided under this section imposed on a noncharitable expenditure
means:
-
- a. For the penalties imposed under this section VI. paragraph
C. (except as provided below with respect to certain of the
special noncharitable expenditures and noncharitable activities
described in paragraph C.4.), the "amount involved" shall be the greater of
(1) the amount paid or incurred in connection with a
noncharitable expenditure or (2) the sum of $25,000.
-
- b. For the penalties imposed by reason of special
noncharitable expenditure defined in paragraph C.4.a., the "amount involved"
is equal to the greater of (1) the difference between the assets
of the CTCC Corporate members before the impairment of the guaranty
and the assets of the CTCC Corporate members subsequent to the
impairment, or (2) the sum of $25,000.
-
- c. For the penalties imposed by reason of special
noncharitable expenditure defined in paragraph C.4.b., the "amount involved"
is equal to the greater of (1) the excess value of the assets
over
- 10-percent of the difference between the assets of the
CTCC Corporate members before the transfer and the assets of the CTCC
Corporate members subsequent to the transfer, or (2) the sum of
$25,000.
-
- d. For the penalties imposed by reason of special
noncharitable expenditure or noncharitable activity defined in paragraphs
C.4.d. and C.4.e., the "amount involved" is equal to the greatest of (1)
the number of staff hours of Service or Department of Justice
attorneys required for the year to respond to any litigation, multiplied
by $100, (2) the cost to indemnify the Service and the United
States in any litigation for the year and for all costs including
any damages, or (3) the sum of $25,000.
-
- D. Reporting Obligations
-
- 1. Penalty on Corporate CTCC members
-
- A penalty is imposed
jointly and severally on the Corporate CTCC members in the event of
certain failures in providing the Annual report.
-
- a. In the case of a failure to submit the Annual Report
required under section IV. paragraph A.3.a. of this Agreement by the date and
in the manner prescribed therefor (determined with regard to any
extension of time for filing), there shall be paid $250 for each day until
the submission of such report.
-
- b. In the case of a failure to include within the Annual Report
any of the information required to be shown under this Agreement or
to show information that is materially correct, there shall be paid by
the Corporate CTCC members $250 for each day during which such
failure
- continues.
-
- The maximum penalty under this section VI. paragraph D.1.
with respect to any one Annual Report shall not exceed $75,000.
-
- 2. Penalty on Individual CTCC members.
-
- Upon a failure to submit
an Annual Report in a timely and complete fashion, the Service
may make a written demand on the CTCC specifying therein a reasonable
future date by which the Annual Report shall be submitted (or the missing
or correct information furnished) for purposes of this
paragraph.
-
- a. Failure to comply with demand. If the CTCC fails to comply
with any demand under paragraph D. 2. on or before the date specified
in such demand, there shall be paid by each Individual CTCC member $250
for each day after the expiration of the time specified in such
demand during which such failure continues. The maximum penalty
imposed under this paragraph on all Individual CTCC members for failures
with respect to any one Annual Report shall not exceed $75,000
per Individual member.
-
- b. Application of penalties for failure to provide
information. Each failure to include with the Annual Report information
required under any single subparagraph of section IV. paragraph B. or section
IV. paragraph C. of this Agreement shall be treated as a
separate failure to provide information and shall be subject to a separate
penalty or penalties under this section VI., except that the $75,000
maximum applies to the Annual Report as a whole and, therefore, is
not increased by reason of multiple failures to comply within the
same Annual Report.
-
- 3. Exception for reasonable cause
-
- No penalty shall be
imposed under this section VI. paragraph D. with respect to any failure if
the CTCC shows that such failure is due to reasonable cause.
-
- 4. Exception for inability to certify specific information
-
- If
the CTCC is unable to certify any matter as required under
this Agreement due to an actual or potentially noncompliant act or acts or
failure to act, no penalty shall be imposed under this section VI.
paragraph D. with respect to the failure to provide such certification,
provided that :
-
- a. the CTCC makes the required certifications with respect to
all but those actual or potentially noncompliant acts,
-
- b. the CTCC takes appropriate and timely steps to determine
whether a potentially noncompliant act is in fact noncompliant,
-
- c. the CTCC discloses all noncompliant acts as soon as
possible under the circumstances, and currently discloses that it is
investigating a particular act or acts that may be noncompliant,
-
- d. the CTCC takes appropriate and timely steps to correct
all noncompliant acts, and
-
- e. the CTCC reports to the Service with respect to the
correction of noncompliant acts as soon as possible under the
circumstances.
-
- E. Joint and Several Liability and Certain Penalty Limitations
for Individual CTCC Members
-
- 1. The Corporate CTCC members shall be jointly and severally
liable for payment of the penalties imposed by section VI.
paragraphs C.1.a., C.2.a., and D.1. The penalties on the Individual CTCC members
are to be paid by the specific Individual CTCC member subject to
the penalty.
-
- 2. The maximum amount of any penalty imposed on any Individual
CTCC member under section VI. with respect to (1) any one act
of self-dealing under paragraph B., (2) any one
noncharitable expenditure
under section VI. paragraph C., or (3) deficiencies in the
Annual Report under section VI., paragraph D., shall not exceed the
lesser of (i) the individual CTCC member's total compensation for the taxable year from all Scientology-related entities, or (ii) the sum
of $50,000 each taxable year, except that the maximum penalty on an
individual CTCC member charged with an act of self-dealing in no event shall be less than the sanction imposed for that act.
-
- 3. No single act or expenditure by a Scientology-related
entity shall be subject to multiple penalties under paragraphs B.1.b,
C.1.b, and/or D.2, or multiple penalties under paragraphs B.2.b, C.2.b,
and/or D.2. (for example, an expenditure constituting both an act
of self-dealing under paragraph B. and a noncharitable expenditure under
paragraph C.). Such an act or expenditure shall be subject to the
applicable penalty in paragraph B., C., or D. that results in the
highest penalty amount.
-
- F. Additional Penalty
-
- If any person or entity becomes liable
for any penalty under paragraphs B. or D. of this section VI. by reason
of any act or failure to act which is not due to reasonable cause
and either:
-
- 1. such person has theretofore been liable for a penalty under
any of such paragraphs; or
-
- 2. such act or failure to act was both willful and
flagrant; then such person shall be liable for an additional penalty equal
to the amount of the applicable first tier penalty.
-
- G. Third-Tier Penalty
-
- 1. If there has been (i) willful, repeated and flagrant
misconduct, and (ii) a failure to correct such misconduct, giving rise
to penalties under paragraphs B. and/or C. of this section VI.,
there is imposed on the Corporate members of the CTCC a penalty equal
to $50,000,000.
-
- 2. For purposes of this section VI., various terms are defined
as follows:
-
- a. the phrase "flagrant misconduct" means
:
-
- (i) For any act of self-dealing under section VI. paragraph B.,
the intentional diversion of assets from one or more Scientology-related entities that is not corrected within the correction
period.
-
- (ii) For any noncharitable expenditure under paragraph C.,
the intentional use of assets from one or more
Scientology-related entities for any purpose other than one specified in Code
section 170 (c) (2) (B) that is not corrected within the correction
period.
-
- b. The phrase "diversion" means the transfer of assets by
a Scientology-related entity that constitutes the private
inurement of its net earnings to the benefit of a private shareholder
or similarly-situated individual.
-
- c. The phrase "repeated," with respect to misconduct, means
more than two occurrences of conduct resulting in the imposition
of second-tier sanctions under this Agreement.
-
- H. Procedures for Penalty Determinations
-
- 1. a. First-tier Penalty
-
- i. With respect to a claimed penalty arising from information
in the Annual Report, the Service shall notify the CTCC in writing of
its belief than an event subject to penalty under paragraphs B.1.,
C.1. or D. of this section VI. has occurred within 180 days of receipt
of the Annual Report. Such notice (hereinafter the "initial notice")
shall identify the expenditure, act (or failure to act) or
transaction the Service believes warrants the imposition of penalties and
an explanation of its reasons for this conclusion. The notice
shallspecify the exact provisions of the applicable law or of
this Agreement the Service believes has been violated and shall,
subject to the requirements of Code section 6103, cite and append evidence
in its possession that supports its belief.
-
- ii. Upon receipt of the initial notice, the CTCC shall
investigate the matter and report its conclusions back to the Service within
90 days of receipt of the initial notice.
-
- iii. If, following receipt of the CTCC's report under section
VI. paragraph H.1.a.(ii), or in the event of a failure to respond,
the Service still believes that an event warranting imposition of
a penalty has occurred and has not been corrected, the Service
will provide a conference of right with the Assistant Commissioner
to undertake a discussion on the merits of the respective positions
of the CTCC and the Service.
-
- iv. If, following the conference of right under
paragraph H.1.a.(iii) of this Section VI., the Service still believes that an
event warranting imposition of a penalty has occurred and is not in
the process of being corrected, the Service will issue a
final determination of penalty and send notice thereof to the CTCC. Such notice shall specify the exact provisions of applicable law or
of this Agreement the Service believes have been violated and
shall, subject to the requirements of Code section 6103, cite and append evidence
in its possession that supports its belief, including its reasons
for not accepting the arguments and evidence submitted by the CTCC
in support of its position that no violation has occurred.
-
- v. With respect to a claimed penalty arising from information
in the Annual Report, the Service must issue a final determination
of first-tier penalty to the CTCC no later than one year from the
date the Service receives the CTCC report described in section
VI. paragraph H.1.a.(2).
-
- vi. If the CTCC continues to disagree with the
Service's determination of a first-tier penalty notice, it shall so notify the Service
in writing. Upon receipt of such notice, the Service may sue
under paragraph H.1.e. to collect the first-tier penalty. Until
the completion of such suit, including the exhaustion of any appeals
or other proceedings for appellate review, the CTCC need not pay
any first-tier penalty determined by the Service.
-
- b. Second-tier penalties
-
- If an event subject to a
first-tier penalty under this Agreement has not been corrected with the
sanction period as defined in section VIII. P., the Service may issue a notice
of final determination of second-tier penalty. The Service must
issue any notice of final determination of second-tier penalty no later
than 90 days after expiration of the sanction period. No
second-tier penalty shall be due under this Agreement if and to the extent that
a taxable expenditure has been corrected within the correction
period.
-
- c. Other penalties.
-
- In the case of penalties other than
those described in paragraphs H.1.a. or H.1.b. of this determination
of penalty to the CTCC.
-
- d. No notice of determination, initial or final, may be made
under this Agreement if the notice is not sent by certified mail to
the CTCC by the 120th day after the end of the transition period.
In addition, no penalty may accrue for any period after December 31,
1999. However, provided that the initial notice was mailed prior to this date,
the penalty asserted may be collected and enforced notwithstanding
the expiration of the transition period.
-
- e. Any penalty imposed under this section VI. is payable
upon notice and demand, and may be collected by the Service through suit.
The Service and the Corporate, Individual and At-large CTCC
members agree that all parties shall have the right to specific performance
(in addition to all other remedies available under the Code, at law,
in equity or under this Agreement).
-
- f. Should correction, as defined in section VIII., paragraph
S., occur within the correction period, as defined in section VIII.
paragraph T., no penalty shall be collected under this section
VI.
-
- 2. Interest
-
- In the event that any penalty under this section
VI. is asserted by the Service and the CTCC fails to make payment
within 90 days of the final notice of penalty, interest on the amount of
such penalty shall accrue from the date of issuance of such final
notice to the date of payment at the Federal short-term applicable rate
(as set forth and applied in Code sections 6621(b) and 6622).
-
- 3. Non-assertion of penalties
-
- a. If it is established to the satisfaction of the Service, in
the exercise of its reasonable discretion, that any event subject
to penalty has been correction during the correction period for
such event, then any penalty imposed with respect to such
event (including interest) shall not be asserted, and if asserted, shall not
be collected, and, if collected, shall be promptly credited
or refunded to the extent permitted by law.
-
- b. The Service shall not assert any penalty under this section
VI. when the CTCC has established to the Service's satisfaction in
the exercise of its reasonable discretion, that :
-
- i. what would otherwise constitute a transaction or
event warranting imposition of penalties caused no financial detriment to
charitable interests;
-
- ii. the transaction of expenditure has been
corrected;
-
- iii. the CTCC has acted promptly and in good faith to correct
any such transaction or expenditure and prevent its recurrence;
or
-
- iv. the penalty is disproportionate to the severity of
the transaction or expenditure.
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