Church of Scientology of California

The Church of Scientology and Tax Exemption — Part 2


Thanks to free speech, any group in America can call itself a religion. However, only the IRS is allowed to make a determination on behalf of the US Government that a particular group is organized for religious purposes, operates for the public benefit, and therefore qualifies for religious tax exempt status. Under the IRS code, qualifying religious and charitable groups receive 501(c)(3) status.

Not all religious groups in America have tax exemption — and not all religious groups want tax exemption. Some religious groups want nothing whatsoever to do with the US Government and so refuse to file the required application for 501(c)(3) status. The application is called a Form 1023.

Some Evangelical groups argue that any religious group in America is automatically tax exempt and does not need to file a 1023 with the government. This view was basically correct until US tax law changes in 1954. Most religious groups in America, however, voluntarily file a 1023 as part of their formal incorporation process. Formal standing as a 501(c)(3) can also help a religious group avoid unwanted IRS attention that may arise from not having such standing.

Charitable groups with 501(c)(3) status must to file annual 990 forms with the IRS. However, religious groups are exempt from filing annual 990’s. This allows religious groups to be extremely secretive about their financial activities.

Nevertheless, if a religious group has unrelated business income in a given tax year it must file 990-T. These forms were private until a change in US law in 2006 which required 990’s and 990-T’s be made publicly available. This change in tax law allowed me to find $1.5 billion in Church of Scientology book value filed in its 2012 990-T’s. Click here to see $846,314,618.00 in Scientology book value.

Heal Our Land Ministries is one of many American religious groups with a highly critical  and anti-government view of 501(c)(3) tax exemption. For example, groups with 501(c)(3) status are legally prohibited from either endorsing or opposing candidates in American political elections. This anti-electioneering prohibition is controversial to say the least.

How did this happen? Why are tax exempt religious groups in America forbidden from engaging in political activities? The answer is twofold:

1. The Revenue Act of 1954 created 501(c)3 status.

2. The Johnson Amendment to the Revenue Act of 1954 prohibits tax exempt organizations from using tax exempt monies to either endorse or oppose candidates in political elections. Many religious groups maintain Senator Johnson of Texas, who in 1954 was the Senate minority leader, put his amendment into the Revenue Act to prevent Christian voters in Texas from using church monies to fight his reelection efforts and vast political ambitions. Johnson went on to become Vice President under President Kennedy.  Johnson then became the 36th President of the United States when President Kennedy was assassinated on November 22, 1963.

As a fairly new addition to the US tax code, section 501(c)(3) has been, and continues to be, the subject of intense litigation. For example, after the recent Hobby Lobby victory at the US Supreme Court, American Evangelicals are now sharpening their knives in search of a test case to overturn the Johnson Amendment. Many Christian churches in America have taken to openly and flagrantly violating the 501(c)(3) political prohibition each year on Pulpit Freedom Sunday.

The key argument for religious groups is this: Does the 501(c)(3) prohibition on political activities violate First Amendment protections?

Amendment I

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”

In response to the willful and deliberate violations of the 501(c)(3) rules such as Pulpit Freedom Sunday, the atheist group Freedom From Religion successfully sued to compel the IRS to enforce the anti-electioneering  Johnson Amendment. Moreover, the group American Atheists is suing the IRS for what it alleges is the preferential treatment granted religious 501(c)(3) groups as opposed to secular 501(c)(3) groups, e.g. religious groups are exempt from filing 990’s whereas non-religious 501(c)(3) groups are not. Does this unequal treatment violate the Equal Protection Clause of the 14th Amendment?

 In the context of American political life, then, IRS Code 501(c)(3) is inherently controversial.

The controversial nature of IRS Code 501(c)(3) has engendered a great deal of litigation and disputation in America. This is the key point I wish to emphasize when discussing 501(c)(3) and the Church of Scientology. 


Relative to IRS Code 501(c)(3) , one can say that there are three different types of religious groups in America:

1. Those that have tax exemption.

2. Those that do not have tax exemption.

3. Businesses pretending to be religions that have obtained 501(c)(3) religious tax exemption by making false representations to the IRS. These business are typically quasi-religious, or pseudo-religious, and consider they are entitled to tax exemption and other religious protections.

One example of a business pretending to be a religious group was the Music Square Church (MSC), formerly known as the Alamo Christian Foundation. From Wikipedia:

“Music Square Church was granted 501c tax-exempt status in 1981,[6] but this was retroactively revoked by the IRS on April 5, 1996.”

“The IRS Commissioner found that “MSC was so closely operated and controlled by and for the benefit of Tony Alamo that it enjoyed no substantive independent existence; that MSC was formed and operated by Tony Alamo for the principal purpose of willfully attempting to defeat or evade federal income tax; and that MSC was inseparable from Tony Alamo, and failed to operate for exclusively charitable purposes.”.[6] MSC sued and lost in the US Court of Claims. They lost on appeal to The United States Court of Appeals in 1999.[6]”

“In June 2013, the federal government filed forfeiture and collection actions in federal court on 27 properties owned by members of Tony Alamo Christian Ministries in an attempt to pay $2.5 million in restitution that Alamo was ordered to pay his victims. The U.S. Attorney’s Office argued that the properties remained in Alamo’s control and that the owners were “owners in name only”.[7]”

In America, the penalties are very harsh for any business pretending to be a religion. And this is exactly what happened to the Church of Scientology of California (CSC), the “Mother Church” of Scientology from 1954-1981.

The short and tortured history of the Church of Scientology of California ended in both the IRS and US courts finding that CSC was organized solely for the benefit of L. Ron Hubbard and his family.

In other words, CSC was a business pretending to be a religion.

This is the truth of the matter.

We examine the Church of Scientology of California, a business pretending to be a religion, in Part 3 of this series.

Requiem for the Church of Scientology of California, 1954 – 2004

Preface: David Miscavige dissembled in his 1999 Declaration in the Wollersheim case when he claimed:

“9. Church of Scientology International (“CSI”) is the Mother Church of the Scientology religion and has been since its inception….”

This doublespeak is not true. The real and original “Mother Church” was the Church of Scientology of California — that is unless the “Scientology religion” did not begin until 1981.

Probity wrote an excellent piece at in 2009. Entitled Requiem for the Church of Scientology of California, 1954 – 2004, this piece describes how CSC, like CAN, met an unlamented fate.


Requiem for the Church of Scientology of California, 1954 – 2004

• The Church of Scientology of California (CSC) forms on 02/18/1954 to accept and adopt the aims, purposes, principles and creed of The Mother Church, “THE CHURCH OF AMERICAN SCIENCE”, of Camden, New Jersey. On 01/02/1957 the Internal Revenue Service exempts CSC from tax.

• The IRS revokes CSC tax-exempt status in 1967 for financial irregularities. CSC refuses to file for-profit income tax returns, instead CPA Greenberg prepares Form 990 returns (as if exempt) for years 1970 – 1972. On 03/28/1978 CSC files suit against the IRS in US Tax Court to challenge the IRS determination of tax deficiency based on filed CSC exempt returns for 1970 – 1972.

• New California corporations are formed to assimilate CSC authority in a reorganization attempt to sidestep mounting legal and tax threats: Church of Scientology International (CSI) 11/18/1981, Religious Technology Center (RTC) 01/01/1982, and Church of Spiritual Technology (CST) 05/28/1982.

• The Church of Scientology Flag Service Organization, Inc. (FSO) incorporates in Florida 05/19/1981. FSO takes over from CSC the Flag Land Base (Mecca of Scientology Gross Income) and severs CSC’s income source. In the UK, CSC assets are transferred to the Church of Scientology Religious Education College Incorporated (Australia). Bridge Publications 02/02/1981 (later Galaxy Press) perpetuate CSC financial fiction that LRH fiction income funds LRH research.

• After six years litigation the tax case between CSC and the IRS comes to a decision before the US Tax Court (“CSC vs. Commissioner of the IRS,” No. 3352-78 ). On 09/24/1984 the court issues judgment against CSC, which CSC appeals. On 07/28/1987 the US Court of Appeals ruling in this case (“CSC vs. Commissioner of the IRS,” No. 85-7324) upholds the 1984 decision:

“We affirm the Tax Court decision upholding the Commissioner’s revocation of the Church of Scientology of California’s tax exempt status on the ground that a portion of its income inured to the benefit of L. Ron Hubbard and others…”

• On 07/08/1988 the IRS (citing CSC bad acts) denies tax-exempt status to CST, RTC and CSI and demands for-profit income tax returns for all years since inception. The IRS assigns examiners full-time to audit CSC income tax for years 1967 – 1984. CSC consolidates income of both Scientology UK operations and the clandestine income siphoning to LRH via the Religious Research Foundation (RRF) during the Flagship Apollo era. CSI funds and directs the CSC tax audit legal defense. Weekly OSA INT statistics graph CSC tax liability as income and expense issues undergo examination.

• The US Supreme Court denies Scientologist charitable tax deductions in Hernandez v. Commissioner, 490 U.S. 680 (1989). CSI asserts inconsistent IRS administration in US Tax Court trial April 4-22, 1992 (Garrison v Commissioner).

• The IRS completes the CSC audit by 1993, a half billion dollars with penalty and interest. With both the final CSC tax assessment and the decision in Garrison on the horizon, the IRS abruptly pulls the plug on the CSC assessment, instead enters into the 10/01/1993 closing agreement with David Miscavige. The closing agreement is explicitly silent on the CSC income tax examination. The hot topic of CSC tax liability, which is for years the IRS primary attack target, mysteriously evaporates in a rumor cloud that David Miscavige sanctions covert operations against government officials. Here are the clear, simple facts:

• The closing agreement does not recognize CSC as tax exempt. CSI pays $12.5 million to the IRS, a suppressive (2½%) percentage of the half billion dollar CSC liability, or hardly enough to cover unreported Social Security taxes on CSC employee wages, wages which are never to appear on a Social Security earning statement despite CSI & IRS joint promises to rectify this omission.

• The State of California, long since agreed to abide by IRS findings, ultimately settles with its namesake for cents on the California tax dollar.

• Since 1993, CSC files for-profit tax returns ‘under protest’, vows to never give in only to dissolve quietly without sorrow in a 2002 to 2004 filing approved by California Attorney General Bill Lockyer (now California State Treasurer).

• CSI presently touts US tax exemption as proof of church status without mention that Hubbard’s mother church CSC is not US tax exempt but factually was considered by the IRS only a for-profit entity up to final dissolution in 2004.

• Inurement to the benefit of LRH is the undisclosed basis of Scientology.