Flag Service Organization

DOX: Scientology’s pricey Florida ‘spiritual mecca’ keeps up its value in latest tax records

(This piece was published on Tony Ortega’s Underground Bunker on 12.2.2017. It is republished here for archival purposes)

Jeffrey Augustine is once again keeping us up to date on Scientology’s financial documents. In this case, he has new figures on how much just one of many Scientology’s entities is worth, according to newly available tax documents.

In 2006, a change in the law required all non-profit organizations — even churches — to submit tax returns known as 990-T forms if they generated what is known as “unrelated business income.” A few years ago, I began finding and turning over to the Underground Bunker the 990-Ts for Scientology’s various entities.

Often, that income is fairly modest. But what’s more important for our purposes is that on each 990-T form there’s a box to fill out for “book value.” In other words, these organizations are asked to estimate their value in assets.

That requirement has led to a rare window into Scientology’s riches, and we like to keep up on the latest changes in those values.

In this case, I’ve found new documents related to the Flag Service Organization (FSO), the entity that runs Scientology’s Flag Land Base in Clearwater, Florida. This is where wealthy Scientologists from around the world come for expensive high-level auditing and other services. And keep in mind, FSO is just one of many entities that make up the Scientology movement, but it’s one of the more important ones.

So let’s see how the value of FSO has changed:

2008: $234.8 million
2009: $246.5 million
2010: $251.9 million
2011: $210.1 million
2012: $290.7 million
2013: $218.2 million
2014: $241.1 million
2015: $257.5 million

And here’s what that change in value looks like…

FSO is not the most valuable entity in the Scientology orbit. When we first began gathering these tax returns, for the year 2011, the Church of Scientology International was worth $790.8 million and the Church of Spiritual Technology listed a value of $434.4 million, for a total of $1.2 billion just for those two entities.

But even if it’s a distant third, the Flag Service Organization is steadily increasing in value.

This is consistent with what the newest defector from Flag told the Bunker recently. Peter Nyiri, who made a dramatic escape to freedom several months ago, said that the Flag Land Base is still bringing in huge income, of $2 million to $4 million a week — by starving the “outer orgs” and pressuring Scientology’s shrinking membership to come to Flag as often as they can for services.

Looking more carefully at recent returns by the FSO with the help of financial expert Dr. Jeff Wasel, we found a few noteworthy items…

In Part V of Flag’s 990-T returns filed in the period 2008-2013, FSO checked “Yes” on question 1 to indicate that it had an “interest in or other authority over a financial account (bank, securities, or other) in a foreign country.” Flag filled in the line to inform the IRS that it has financial interests in the United Kingdom and Australia. What are Flag’s financial interests in the United Kingdom and Australia? More importantly, how are they moving this money, and declaring these movements to the appropriate authorities, given these movements are between foreign entities?

In Part V of Flag’s 2014 and 2015, Flag checked “No,” indicating that it no longer had an “interest in or other authority over a financial account (bank, securities, or other) in a foreign country.” What happened to Flag’s financial interests in the United Kingdom and Australia?

In examining the 2013-2015 990-T’s, my personal view is that Flag’s stated costs for building improvements are either padded or excessive. For example, NOVA HRC is the firm that does the actual renovations on Scientology’s buildings (as well as many other clients). In the NOVA portfolio we have two hard data points:

1. Nova gives a project cost of $18,000,000 to renovate 393 guest rooms at the Ritz Carlton in Laguna Niguel, California. This is $45,801 per guest room.

2. Nova gives a project cost of $27,000,000 to renovate 220 guest rooms Flag’s Fort Harrison hotel. This is $122,727 per guest room. This seems utterly absurd and suggests, in my opinion, that the IRS should open an inquiry into why Scientology spends so lavishly on parishioner guest rooms. Scientology orders its parishioners to stay at Flag hotels and does not have to compete with secular hotels, so why the excessive spending?

In the Flag tax returns we see approximately $80,000 spent on exercise equipment for two properties. Additionally, their 2013 990-T form states that they spent some $14,296,680 on “improving” the Sandcastle Restaurant, used for public dining. For this money, it better be “Nobu” quality in food and atmosphere! The price mark-up on restaurant fixtures, as well as the same convoluted permitting process as that of the construction industry, are rife with the same potential for what seems to be excessive spending. What exactly is going on inside of Scientology and Nova that seems to be driving up renovation costs as compared to lower costs in the secular marketplace?

On a final note, even with the opening of the Super Power building on November 17, 2013 the Flag Land Base does not appear to have “boomed” whatsoever as a result of this edifice. Valued at $80,000,000, the Church of Scientology raised $145,000,000 for the project. Where did all the extra money go?

— Jeffrey Augustine

Flag Service Organization IRS 990-T forms 2008-2015

FSO Book Value 2015 $257,506,278

FSO Book Value 2014 $241,134,104

FSO Book Value 2013 $218,154,319

FSO Book Value 2012 $290,655,686

FSO Book Value 2011 $210,075,914

FSO Book Value 2010 $251,896,300

FSO Book Value 2009 $246,516,017

FSO Book Value 2008 $234,764,273

Flag Service Organization (FSO) IRS 990-T’s for 2008-2014

source-v196-cover
Flag Service Organization (FSO) IRS 990-T’s updated to include tax years 2013 and 2014.

Located in Clearwater, Florida “Flag” as it is called,  is the top moneymaking Org in the Scientology transnational criminal syndicate.

FSO Book Value 2014 $241,134,104

FSO Book Value 2013 $218,154,319

FSO Book Value 2012 $209,655,686

FSO Book Value 2011 $210,075,914

FSO Book Value 2010 $251,896,300

FSO Book Value 2009 $246,516,017

FSO Book Value 2008 $234,764,273

Flag Price Lists from 2007 for both services and accommodations:

flagpricing001

scn-price-list-7

20 questions about Scientology — with answers that get to the center of a dying movement

(Authored by Jeffrey Augustine, this essay was originally published by Tony Ortega at the Underground Bunker and is reprinted here for archival purposes)

1: What is the Church of Scientology?

Technically speaking, there is no single entity known as the “Church of Scientology.” As the organization told the IRS, the term “Church of Scientology” is one of convenience referring to all of the churches in the Scientology hierarchy:
20Qs1

“Flag” (the Flag Service Organization in Clearwater, Florida) is a separate Scientology church, as is the Religious Technology Center, the Church of Spiritual Technology, and so on. All Scientology churches are legally separate.

2: Why are all the churches in the Scientology hierarchy legally separate?

In order to mitigate the dangers posed by lawsuits, all of the “churches” in the Scientology hierarchy were set up to be legally separate. Before beginning any service sold by Scientology, a Scientologist must sign one contract for one service with one church. The legally separate nature of all churches is stated in each of the contracts Scientologists must sign before receiving services:
20Qs2
3: If there is no “Church of Scientology” then how does a person become a member of the Church of Scientology?

Legally speaking, the Church of Scientology is a “term of convenience” and therefore can have no members. So what do Scientologists actually join and belong to? Scientologists must join the “official Scientology membership association” known as the “International Association of Scientologists.” In order to receive services from any Scientology church, a Scientologist must be a member of the IAS. There may be exceptions for introductory courses, but as a general statement Scientologists must be IAS members to progress up the Bridge.

4: What is the IAS?

According to Scientology’s own website, “The International Association of Scientologists (IAS) is an unincorporated membership organization open to all Scientologists from all nations.”

5: What is an unincorporated membership association?

An unincorporated membership association has no legal existence apart from its members. The IAS cannot legally do anything in and of itself.

6: If the IAS cannot do anything then how does it get anything done?

The IAS has an operating arm called the International Association of Scientologists Administrations (IASA). From the IASA website: “IAS Administrations is a non-profit foundation contracted to provide services to members of the IAS — the International Association of Scientologists.”

7: Scientologists are prevailed upon frequently to donate money to the IAS for various IAS statuses; what are IAS statuses?

IAS statuses are essentially meaningless honors having no real world value. For example, apart from the IAS, it means nothing to be an IAS Patron Meritorious. IAS statuses merely indicate how much money a Scientologist has donated. IAS statuses confer status upon a person in the Church of Scientology and nowhere else.

8: Where do IAS donations actually go?

The IAS offers virtually no financial accountability to Scientologists for how IAS donations are spent. There are occasional PR announcements made by the IAS concerning grants it has made for Scientology Volunteer Ministers or other Scientology-related efforts. However, these efforts appear to be wholly geared towards PR for Scientology and nothing else. (Members were told, for example, that recent Super Bowl ads were paid for with IAS “grants.”) In legal terms, donations to the IAS are “unrestricted,” meaning donations can be spent in any way the IAS deems necessary. Former Scientologists have said that IAS donations effectively constitute David Miscavige’s personal slush fund and that he does not have to account to anyone for how he spends it. The ever increasing emphasis on IAS donations in the past fifteen years tends to support the view that David Miscavige places a very high value on having an unrestricted source of funds at his disposal. Moreover, every dollar donated to the IAS is a dollar for which the Church does not have to deliver any corresponding services such as auditing.

9: The Church of Scientology makes a great fuss about the Sea Org and how the Sea Org is clearing the planet. But what exactly is the Sea Org?

The Sea Org appears to be a legal fiction. As David Miscavige’s attorney Wallace Jefferson has argued in Rathbun v. Miscavige: “Plaintiff asserts that Mr. Miscavige exercised control because he leads the Sea Organization, a religious order within Scientology. But the ‘Sea Org’ is not a corporate entity; it has no physical or legal existence. It is not incorporated or established pursuant to legal formalities. It has no constitution, charter or bylaws, and no formal or informal ecclesiastical, corporate, or other management structure. It has no directors, officers, managing agents, or other executives; no employees, staff members, or volunteers; no income; no disbursements, no bank accounts or other assets; no liabilities; no stationery; no office, home, address, or telephone number. It does not create or maintain any financial, personnel, or other records. It can neither give nor receive orders because it has no one to either give or receive them or to carry them out. It cannot sue or be sued.”

10: If the Sea Org does not have employees, staff members, or volunteers, and does not exist in any meaningful way, then why does the Church of Scientology International have the Sea Org?

The Church of Scientology needs a labor pool even though the Church does not want the liabilities of employees, paying minimum wage, overtime, or offering other worker protections or benefits. Therefore, the Church of Scientology created a “religious order” and named it the Sea Org. In America and other Western countries, religious workers are exempt from minimum wage, overtime, and other worker protections that employees receive. In the scenario presented by the Church, then, members of the fundamentally non-existent Sea Org religious order sign billion-year contracts as a pledge of their devotion to L. Ron Hubbard and Scientology. Thereafter, these Sea Org members are assigned to individual churches and sign five year staff contracts. Religious worker status also allows the Church of Scientology to conduct its notorious prison-like Rehabilitation Project Force program under the guise of “spiritual rehabilitation.”

11: Given that the Sea Org does not legally exist, who actually recruits Sea Org members; manages their training and indoctrination into the Sea Org; gives them a meager weekly stipend; administers the RPF; and assigns them jobs in the Church of Scientology?

The Church of Scientology International does.

12: What is the Church of Scientology International?

The Church of Scientology International is the “administrative Scientology church,” also called the “Mother Church” which had been previously assigned to a now defunct entity, the Church of Scientology of California. CSI does not deliver auditing or other Scientology services. Rather, CSI licenses and manages the legally separate Scientology churches (Orgs) beneath it. In return for its services, CSI collects management fees and a percentage of Org income.

13: CSI licenses the churches beneath it. Who licenses CSI?

The Religious Technology Center (RTC) licenses CSI to sell and deliver Scientology goods and services. In exchange, CSI pays RTC licensing fees and a percentage of CSI’s income. RTC’s purported task is to ensure the ecclesiastical purity of the Scientology religion. David Miscavige is the Chairman of the Board of the Religious Technology Center, which is why he is known as “C.O.B.” to the Scientology membership.

14: Who licenses RTC?

This is an interesting question. RTC owns the “Advanced Materials” of Scientology, i.e. the OT levels. The rest of the Scientology’s intellectual property is owned by the Church of Spiritual Technology (CST). CST licenses this intellectual property to RTC who sub-licenses it to CSI.

15: This sounds like a franchise system.

The easiest way to think of the Church of Scientology is as a franchise system, the legal design of which is evasive and constructed to fend off lawsuits, discovery, and court trials. We covered this in our last installment in the Underground Bunker where the Church of Scientology’s system of unconscionable contracts was discussed. Essentially, no one in the Church of Scientology – Sea Org, Staff, or Public – has any power whatsoever. Only David Miscavige has any power and his power is that of a Dictator.

16: Who actually owns the Church of Scientology?

The Church of Scientology is nothing more than a predatory intellectual property-based business engaged in selling and delivering personal psychotherapy services. The Church is therefore owned by the two corporations that own and license the intellectual property and the rights to deliver its personal psychotherapy services: The Church of Spiritual Technology and the Religious Technology Center. Given that CST is, by charter, a passive entity, the effective and active owner can only be RTC. Thus, whoever controls RTC effectively owns and controls the Church of Scientology. At present, this person is David Miscavige.

17: Given that the Church of Scientology is an IP-based personal services business, it logically follows that a management and sales force is needed to administer, sell, deliver, and collect the revenues deriving from this intellectual property. Is this the real purpose of the Sea Org?

In my opinion yes. The “Church of Scientology” is fundamentally a predatory business that does not want the financial liabilities associated with employees. Said another way, the Church of Scientology is designed to extract the maximum amount of money from its client base while reducing its cost of operations to the bare minimum. From this perspective, the IAS is far more lucrative than operating the Sea Org to deliver personal services. Based upon this assessment, it is easy to see why the Church of Scientology’s main business these days is focused in the pure sophistry of selling IAS statuses.

18: Given that selling IAS statuses is so central to the Church of Scientology, why does the Church bother with the expense of staffing and maintaining its existing Orgs and purchasing and renovating new Orgs?

The answer is multifaceted: The IRS does not allow 501(c)(3) tax exempt organizations to endlessly hoard wealth. The IRS instead requires tax exempt groups to spend a portion of monies collected for the public benefit. Scientology must spend some of its wealth and real estate – in the form or “new Ideal Orgs” — is one of the few things the Church can easily justify to the IRS as being a public benefit.

New Ideal Orgs serve to create the appearance to Scientologists that their Church is expanding and growing. Actually, the Church is contracting and losing membership. Nevertheless, because the Church must spend some its cash hoard and the interest it generates, Scientology will, predictively, continue to purchase and open buildings — although at a reduced pace as we are seeing. IAS donations act to offset any financial losses associated with purchasing empty and financially non-performing Orgs. In the long run, the Church of Scientology will continue to accumulate a vast real estate portfolio as a function of its tax exemption.

Referring back to Scientology as a franchise system, the Orgs are the only RTC-authorized locations where Scientology auditing services may be delivered. This is really no different than saying that Goodyear tires may only be purchased and mounted at authorized Goodyear dealers by Goodyear trained service technicians.

Orgs are a place where a member of an unincorporated membership organization called the IAS meets a member of a non-existent Sea Org to receive auditing. The money moves through the Org and uplines to CSI, RTC, and CST. The poor Sea Org members get virtually nothing.

If the Church of Scientology began closing Orgs it could cause a calamitous “run on the bank” in which Scientologists lined up by the thousands for refunds in fear that Scientology was going out of business. The purchase of Orgs creates a confidence factor that Scientology is not going out of business.

19: How do you see the Church of Scientology in 2017?

The Church of Scientology has become about accumulating MEST (physical property) while substituting IAS statuses for any claimed form of spiritual enlightenment. Indeed, it seems any pretense to spiritual enlightenment in Scientology has gone out the window in favor of celebrating IAS statuses and raising money endlessly for buildings.

20: Do you have one of your charts?

Intended to be read from bottom to top, the chart below is the latest attempt in my series of wall charts that attempt to explain the Church of Scientology.

Is Attorney Bert Deixler Risking the Church of Scientology’s Tax Exemption?

The Church of Scientology is fighting for its life in the Garcia v. Flag et. al. lawsuit. Garcia is alleging commercial fraud on the part of the Church of Scientology. If Garcia wins, the floodgates to other lawsuits against the Church of Scientology for commercial fraud are flung wide open. The instances of Scientology and its front groups lying in order to raise money are legion, e.g. Narconon has more than 27 lawsuits against it for allegations related to lying to families of drug addicts about the type and efficacy of treatment services offered by Narconon.

Former Scientology “second in command” Mark “Marty” Rathbun has been called as a key witness by Garcia. Scientology attorney Bert Deixler deposed Rathbun. Tony Ortega posted more video of the deposition at his blog today. We post Tony’s YT video below.

In this video, Scientology attorney Deixler attempts to use a letter Rathbun wrote to David Miscavige in 1993 to impeach Rathbun’s credibility. However, the problem in doing so is that Rathbun opens up a Pandora’s Box concerning the Church of Scientology wholesale violations of the priest-penitent privilege; Founder L. Ron Hubbard; Scientology’s notorious Fair Game policy; and the 1993 tax exemption the IRS granted Scientology.

Deixler pushing Rathbun to read the internal “Liability Formula” Rathbun wrote in 1993 — which document is allegedly priest-penitent in nature — is proof that the Church uses privileged ecclesiastical folders against former members. This is inherently Fair Game and an egregious violation of what the David Miscavige, Mark Rathbun, Monique Yingling, and other CSI lawyers told the IRS in support of gain tax exemption.

Deixler leads with his chin in this deposition and allows Rathbun to state on the record that Scientology’s vicious Fair Game policy was never cancelled. By introducing Rathbun’s 1993 “Liability Formula” into the record, Deixler also hands Church critics further evidence that the Church uses private “ecclesiastical confessions” against former members. This is an egregious violation of the priest-penitent privilege.

How did Deixler get a copy of a private confession Rathbun wrote to Miscavige? In my opinion, the letter had to have come directly from Miscavige via the Church of Scientology’s notorious Office of Special Affairs (OSA). I say this because Miscavige would have had to instruct OSA to deliver this confessional letter to Deixler. Moreover, this private letter would have been in Rathbun’s CSI-owned “pc folder” thus showing Miscavige’s complete control over CSI and OSA Legal.

Finally, in attempting to establish a foundation, Deixler allows Rathbun to discuss tax exemption thus opening the door to this question: If what Mark Rathbun said in his 1993 Liability Formula was untrue, then was what Mark Rathbun told the IRS in pursuit of tax exemption also untrue? Rathbun was an indispensable and central figure in Scientology obtaining tax exemption.

Deixler’s attempt to impeach Rathbun goes to impeaching the truthfulness of the Church’s tax exemption as well — and this could become a matter for a Grand Jury or DOJ probe.

Deixler and Miscavige can’t have it only one way: Attacking Rathbun is attacking tax exemption is attacking Miscavige.

The Church of Scientology: One big ball of wax.

$100,000 Scientology Fine if an OT Talks About the OT Levels!

Church of Scientology OT’s refuse to publicly discuss the OT levels for many reasons.

One major reason of which the public is unaware is the $100,000 fine OT’s agree to pay if they make public any parts of the OT Levels.

You read that correctly: OT’s sign a contract with Flag Services Organization (FSO) which binds them to pay $100,000 for each and every time they disclose any information about the OT Levels.

In the Church of Scientology, the OT Levels are called the Advanced Technology.

The Advanced Technology is a classified by the Church of Scientology as a religious trade secret. As such, only certain churches of Scientology are licensed by RTC to use this ultra-secret advanced technology to handle the effects of the catastrophe that occurred in this sector of the galaxy 75,000,000 years ago on a confederation of 76 planets — you know the rest of the story. The PDF below contains the plain text of the actual Flag contract:

Scientology-Fine-if-an-OT-Talks-About-the-OT-Levels

FSO: Flag Service Organization 990-T Filings 2008-2012

Flag Service Organization (FSO) 990-T Filings 2008-2012

FSO Book Value 2012 Book Value $290,655,686

FSO Book Value 2011 Book Value $210,075,914

FSO Book Value 2010 Book Value $251,896,300

FSO Book Value 2009 Book Value $246,516,017

FSO Book Value 2008 Book Value $234,764,273

Notes:

1. FSO book value declines by about $39,000,000 in 2011. This appears to be a financial transfer from one part of the Church to another.

2. FSO book value then surges by the addition of $80,000,000 in 2012. This again appears to be a financial transfer from one part of the Church to another.