religious tax exemption

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

The Church of Scientology and the Highly Obscene “R” Word

The highly obscene “R” word in the Church of Scientology is REFUND as in, “We hate to give anyone a refund!”

There are three types of refunds in the Church of Scientology:

1. Repayment of Advanced Payments (AP) which is often called “monies on account.” The Church has always solicited and encouraged its members to make advanced payments for future services. The push for advanced payments surged dramatically in the late 1970’s when financial inflation was rampant(1). The Church is said to have a large financial exposure on AP. Chaos could ensue on Church finance lines if there were a sudden mass demand for refunds by thousands of disaffected Scientologists.

2. Refunds for Services Delivered. If someone takes a Scientology service and is not happy with it, they are allowed to ask for a refund within a certain amount of time.

3. Refunds of Unrestricted Donations to the IAS and other “non-delivery” Church trusts. In other words, donations where no services or goods are delivered in exchange.”Unrestricted” simply means that the Church can spend the money however it sees fit. As a general rule, when a 501(c)3 solicits donations for a particular purpose such as a building, the money may only be legally spent on that purpose and no other purpose. Therefore, Scientology uses the IAS and its other trusts to solicit unrestricted donations for nonspecific and non-defined purposes such as “Defense of the Scientology Religion.” These funds can then be used for anything the Church deems to be in defense of the Scientology religion: Lawyers, PI’s, stalking, harassment, Super Bowl ads, building purchases, or for stockpiling in bank accounts. Tokens such as trophies, commendations, key chains, or trinkets are typically given for unrestricted donations given. The Church uses contracts in an attempt to make such donations completely nonrefundable. These contracts call for any disputes to be subject to binding arbitration within the Church conducted by Church members.

History: Beginning in 1991, the Church of Scientology International renewed its request to the IRS for 501(c)3 status as a tax-exempt church. The story is far more complex than David Miscavige and Mark Rathbun simply walking into the IRS headquarters in Washington D.C. and asking for a meeting with the IRS Commissioner. While that actually happened, Miscavige and Rathbun’s request to the IRS began a three year investigation by the IRS into the Church and its organizational structure and finances. The Church submitted a 1023 to the IRS. The 1023 is an application for 501(c)3 status as a tax-exempt organization. Church of Scientology 1023 here.

What the Church told the IRS: The Church told the IRS that it had an internal refund process in place. Among other things, the Church told the IRS about its CVB (Claims Verification Board) account. The implications here are scandalous:

CVBWhat actually happens:  The Church never told the IRS it gave refunds promptly or easily. Rather, the Church stated quite clearly that it handles refund “demands” on an “abandoned or met” basis. To say that the CVB must pass on the “validity” of a claim for a refund is a statement that the Church of Scientology wants to keep every dollar it takes in.

Scientology is quick and eager to grab money from people. However,when it comes to refunds the Church becomes an obnoxious, bureaucratic, sandbagging, fine print deadbeat. Some people who want refunds have to get an attorney after the Church denies their refund request. The Church of Scientology was simply not designed to give refunds with any shred of dignity or grace.

What becomes explicit from the Church’s fine print is the fact that the Church reserves the right to persuade, convince, or threaten a member into abandoning their refund “demand.”

The Claims Verification Board Routing form below (source) makes it clear that the Church of Scientology does not want to give refunds. The Church makes anyone requesting a refund run a gauntlet of Church officials whose goal is to convince that person to abandon their refund request.

The aftermath of getting a refund: If a person succeeds in getting a refund, they are banned from receiving future Scientology services forever. As a practical matter, most people who receive refunds are declared SP’s.

Footnotes:

(1)On 16 September 1976, Scientology Founder L. Ron Hubbard issued an Executive Directive. Entitled Solution to Inflation, the ED laid out Hubbard’s plan for dealing with inflation in the Church:

“… we have no choice but to adjust set donation figures. But to do so suddenly would work great hardship on and deny those services to our public and parishioners.

“Until a recent study was complete there was no solution other than a sudden and huge price rise. Fortunately I have found a solution which avoids this.

“Accordingly, henceforth, beginning at midnight 31 October 1976 the requested donations of all services, books, meters, courses and processing, will increase 5%.

“On 30 November 1976 at midnight, all these prices will be increased 5% over October.

“In the United Kingdom, however, where the level of donations was already only half that of other parts of the world for each item and service, the increase will be 10% per month.

“Thereafter, at midnight on the last day of each month, the expected donations will increase 5% over the past month.
The formula for calculating the price or donation for any month for any item or service for any continent and any currency is simply to multiply the prices of the past month by 1.05 (1.10 for UK) and this will give the amounts for the following month…”

Hubbard’s Solution to Inflation generated a huge amount of advanced payments made by Scientologists wanting to lock in lower prices for future services. In context, and to be historically fair to Hubbard, the demand for Scientology services was such in the mid-1970’s that Hubbard could raise prices 5% per month while the Church membership continued to grow. Several of my sources have told me that the financial and membership zenith of Scientology occurred with the release of NED for OT’s on 15 September 1978. This makes sense to me inasmuch as the “Mission Holders Massacre” of 1982 saw 35,000 people leave the Church.

Recommended reading on the Mission Holders Massacre:

A Piece of Blue Sky by John Atack. Section 7, Chapter 1.

ESMB: The Mission Holders Massacre