Inside Scientology - Janet Reitman [92]
Every week, Rathbun and Miscavige returned to Los Angeles with questions from the tax authorities; their aides would work diligently to prepare answers for the officials' next trip. "There was a huge number of people putting together all of this information: binders and pictures, charts," recalled Tanja Castle, who was one of David Miscavige's secretaries at the time. "The whole religion of Scientology was basically explained to the IRS: the Grade Chart, the ethics conditions ... [Dave and Marty] were trying to show these guys how Scientology is a religion, how it actually did conform to the basic tenets of a religion, how it wasn't for profit—we gave them all the finance records from all the treasuries, all the way down to the lowest org. The entirety of Scientology had to get their financial records straight"—a difficult task, as most of the organizations kept few if any records.
Indeed, said one church finance officer, the church's finances were such a mess, it had to reconstruct its books wholesale. "There really were no books," she said. "Had anyone from the IRS come in and looked at our finances, they would have never given us any kind of exemption. Some of these orgs hadn't recorded their income, yet their members were claiming on their tax forms that they'd donated tens of thousands of dollars to Scientology, and no one could prove it. They had no records that actually gave you any idea of what a church had, or what it spent—and I'm talking about all the organizations all over the country."
To fix this problem, David Miscavige had created an "audit task force" in 1987 to do forensic accounting. In Los Angeles, Scientology's Pacific Area Command Base became the site of a frenzied audit involving 120 Scientologists who worked nearly round the clock to make sense of the church's finances. In New York, a task force of around 50 people set up shop on a floor of the New York Org in midtown Manhattan and did the same thing. Over the next several years, as the church's lawsuits and investigations of the IRS ballooned, these Scientologists pieced together the books of every Scientology organization, mission, and church-affiliated entity in the United States.
Finally, in the fall of 1993 the two sides reach a settlement, the details of which would not be fully known until the end of 1997. In a highly unusual move, the IRS had declared the agreement secret, not subject to release through the Freedom of Information Act or its own code of regulations.* It was a sharp departure from how other religious organizations had been treated. As the New York Times later noted, both the Jimmy Swaggart Ministries and an affiliate of the Reverend Jerry Falwell's had been "required by the I.R.S. to disclose that they had paid back taxes in settling disputes in recent years."
The excuse given within the agency was that the Scientology fight had been tying up IRS resources for too long. But it was puzzling, the official noted, because the IRS staff involved in the agreement had also been fairly confident they'd ultimately win the war.
For twenty-five years, the IRS had steadfastly insisted that Scientology was a business, and it had prevailed in all of the substantive suits brought by the church. As late as June 1992, the U.S. Claims Court had upheld the IRS's denial of tax-exempt status to the Church of Scientology. The ruling strongly supported the agency's position that the church was a commercial organization, and again the judge reproved it for deliberately deceptive practices—this time in designing its financial structure. "The decision [to settle] came as an enormous shock to all of us," the official said.
In an editorial, the St. Petersburg Times wrote that the IRS had "surrendered" to the Scientologists. "Instead of tough tax law enforcement, taxpayers are seeing a Scientology sellout."